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Inventory is one of the largest expenses for many organizations, which is why most companies are keenly aware of inventory levels. Before computers, tracking inventory involved single-stage calculations done by hand per item, per location. This made it difficult, if not impossible, to attain true visibility across large supply chains. The debut of the Universal Product Code (UPC) in the 1970s sparked a revolution in inventory efficiency—first within the grocery industry and then other retail establishments.1 Handwritten inventory processes were gradually replaced by barcode scanning and computer data entry. The inventory systems of today are, in comparison with these early methods, highly sophisticated, and are now capable of multi-stage, multi-site management, tracking, and analytics. The software market is saturated by diversity in scale, purpose, and functionality, which makes the buying process extremely complicated. This guide divides inventory management into three discrete categories—retail and small business; warehouse/supply chain management (SCM); and enterprise resource planning (ERP)—and compares the leading solutions in each.
Although inventory management software takes many forms, all of them serve the central purpose of inventory optimization, which we define as: maintaining the right amount of the right items stocked in the right locations within a supply network. Optimization is about balancing the need for product availability against the need to minimize stock holding and handling costs.2 Organizations that implement formal inventory optimization systems have reduced inventory levels by up to 25 percent within one year and enjoyed a discounted cash flow of 50 percent in less than two years, according to a study by IDC Manufacturing Insights.3 But inventory optimization isn’t just about cutting down on stock. There are a number of other key benefits, including:
- Reduced overhead cost (for storage, maintenance, expiration of products)
- Increased customer satisfaction (uninterrupted delivery of products and services)
- Maximized warehouse space and operations
- Ability to anticipate fluctuations in supply and demand
Outside of the retail/sales model, inventory optimization is also useful in manufacturing—for management of materials, resources, and fixed assets—and service management—to supply the materials for service delivery and connect price with actual materials cost.
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Solutions for inventory management come in a variety of packages. Some are simply standalone applications for recording stock levels, though these are less popular due to limitations in visibility and management. Most buyers only consider a standalone application to supplement an existing business management system lacking inventory features. Since this kind of implementation is strategically regressive, this guide will focus on inventory management modules included in larger business management systems.
Although there is stunning diversity among solutions from different verticals, most inventory management solutions help automate and control some or all of the following areas:
- Inventory balance optimization (maintaining the best mix and volume of items)
- Tracking inventory between locations (via barcodes, serial numbers, or radio frequency ID)
- Procurement of new inventory (replenishment ordering, receiving, returns)
- Warehouse distribution (packaging, shipping)
- Connecting product sales (in-store or online) to inventory levels
- Preventing spoilage and obsolescence
- Managing fixed assets (equipment, facilities, vehicles)
- Demand forecasting and planning
- Accurate financial reporting
Decide which of these functional areas are important to your business and select software with strong tools in those areas. There are also more general traits for effective inventory software that will help you keep up with competitors and reap greater return on your investment.
Choose a system that integrates with or includes other back-office systems, like point-of-sale (POS), customer relationship management (CRM), and accounting software. Inventory management is not an end in itself; it is only valuable insomuch that it enables better execution of other business processes, like sales, marketing, and service delivery. Integration with accounting systems is especially important since accurate reporting and tax procedures affect your investors, financial planning, and regulatory compliance. The recorded value of your assets must match the actual, physical value.
Choose a system that works in real time and is flexible, scalable, and transparent to users. Your inventory is not a fixed entity, but rather a living, breathing organism subject to continuous fluctuation. It’s important that your software be responsive to these changes and keep every user updated in real- time, while also allowing for growth in overall infrastructure (new warehouses, employees, and store locations). For this reason, many companies today opt for cloud-based solutions, although these are certainly not the only option.
Let’s take a look at the three major software verticals for inventory management and some examples of leading solutions in each.
1. Retail & Small Business
Small businesses tend to use** inventory management software** mostly on the front end, in a sales and fulfillment capacity (depending on whether the establishment is bricks-and-mortar or based online). They usually choose solutions that help them manage stock levels per one location, with the ability to automate replenishment and make special order requests as necessary. Since efficiency is paramount on a smaller business budget, it’s also important to be able to remove unwanted, obsolete, or defective items from stock and return them to vendors.
Many retail stores or establishments with only one or two locations opt for a POS or accounting system with integrated inventory management. A system with all of the above is usually classified as a retail management system (RMS), although there are different labels depending on the vendor.
Case Study: Office Coffee Company4
The Office Coffee Company provides high quality, ethically-sourced coffee and tea to businesses, with over 30 years of industry knowledge. When they partnered with the Cool Earth charity to help combat climate change and protect rainforests, they encountered multiple new revenue streams and selling channels, which proved to be quite a challenge for their legacy systems. At the time, OCC was using Sage Accounts and Act along with other manual processes to perform CRM, inventory control, purchasing, and order processing. They were also outsourcing their financial management. To get everything in one system, they decided on BrightPearl.
Managing Director Richard Doherty was very concerned about data integrity, wastedexpenditure, and risk of error. “Brightpearl linked everything together,” he said. “No more duplication of effort, reduced risk of errors, and much less manual processes.” Here are some other results Doherty reported:
- Elimination of risky server synchronizations
- No longer have to outsource financial administration
- Automated invoicing synced directly with CRM
- Savings of four thousand pounds a month, or £50k a year
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2. Warehouse/Supply Chain Management
If retail establishments are the front end of the inventory journey, supply chain management is
the infrastructure that moves products. Most inventory features found in SCM systems focus on managing the flow of products between suppliers, warehouses, and customers or stores.5 Supply chain managers are often tasked with the responsibility of matching inventory levels with customer demand in order to optimize costs.
Case Study: IGX Global6
IGX Global helps organizations develop network and information security plans by providing them with intelligence, products, and expertise. Based in Connecticut, IGX has been helping businesses maintain stable technology infrastructures since 1998. Before FinancialForce, they were using Excel spreadsheets with no reporting capabilities and Quickbooks for their inventory and supply chain needs. They had 25 different price lists with over 33,000 part numbers across different regions and were unable to report on order backlogs or align recognized revenue with cost of goods. In fact, they were losing money due to over or understated revenue and ordering errors.
After migrating to FinancialForce’s SCM system, IGX reported several new strategic advantages, including:
- Integration between SCM and accounting system
- Cost of goods and revenue recognized in same month
- Printed quotes look more professional and have less errors
- Converting orders to sales orders now takes seconds, instead of an hour
- Powerful reporting improves monthly closing projections
- Supply chain visibility across all departments
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3. Enterprise Resource Planning
Enterprise Resource Planning software is a large scale business management solution designed to orchestrate processes across an entire organization, from product planning, to manufacturing, marketing and sales, inventory management, fulfillment, accounting, and even human resources in some cases. Although inventory management is only one element of ERP, many large companies—and even smaller companies with globalized networks—are attracted to ERP for its comprehensive approach and company-wide visibility. Inventory management within ERP starts with materials planning and asset management in manufacturing and extends to warehouse management, detailed accounting, revenue recognition, and powerful analytics.
Case Study: Vineland Estates Winery7
Vineland Estates Winery produces 80,000 cases of wine each year from its 150 acre vineyard in the heart of Ontario’s Niagara wine country. The wine they produce is shipped to over a dozen countries and served in the vineyard’s tasting room and restaurant. The industry is governed by a number of agencies and regulations, including 11 separate taxes assessed on the vineyard’s products. Vineland Estates uses Sage 300 to ensure compliance with these regulations, as well as manage inventory, fulfill orders, calculate fair-value pricing, and automate orders for their exclusive Wine Club. Vineland Estates’ president, Allan Schmidt, has listed a number of key benefits of using Sage 300:
- Access to real-time inventory numbers
- Mobile access for salespeople
- Order processing time cut from seven days to two hours
- Ability to process 100 or more orders each day with a small staff
- Total efficiency savings of 20-30 hours per month
- Tax audits take less than two days, instead of six days
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- Dolinsky, Anton. “Inventory Management History Part Four.” Almyta Systems. Accessed January 18, 2015. http://www.almyta.com/Inventory_Management_History_4.asp
- “Benefits of Inventory Management.” Boundless. Accessed January 16, 2015. https://www.boundless. com/finance/textbooks/boundless-finance-textbook/working-capital-management-18/inventory- management-129/benefits-of-inventory-management-531-5154/
- Brandel, William. “Free Up Cash.” Computerworld. Accessed January 19, 2015. http://www.computerworld. com/article/2549533/it-industry/free-up-cash-.html?page=3
- Customer Stories: “The Office Coffee Company.” Brightpearl. Accessed January 20, 2015. https://www. brightpearl.com/resources/customer-stories/office-coffee-company
- “Supply chain management software.” Wikipedia. Last modified January 4, 2015. http://en.wikipedia.org/ wiki/Supply_chain_management_software
- “Our Customers: IGX Global.” FinancialForce. Accessed January 20, 2015. http://www.financialforce.com/ customers/success-stories/our-customers/?customer=igx-global&product=scm
- “Vineland Estates Winery Toasts the Merits of Sage 300 ERP.” Sage. Accessed January 20, 2015. http:// na.sage.com/~/media/site/sage-300-erp/responsive/success-stories/sage-300-erp-success-vineland.pdf