Why You May Need An Inventory Management System

When a business first starts, it may use a spreadsheet to track its purchases and sales of stock.

But it doesn’t take long for a successful business to outgrow spreadsheets, as this is a labour intensive method of dealing with stock that is rarely “real time”.

Most businesses will start with an accounting software that has an inventory management system included – such as MYOB AccountRight and recently Xero.

As the complexity of their business grows, they will move onto ERP software such as Ostendo and MYOB Advanced.

Why do businesses use software to help them with their inventory?

  1. Using inventory codes speeds up data entry…the codes are linked to the correct income and cost accounts, so there is no guesswork by sales staff in which accounts to use. It means consistency and increased speed of sales order and purchase order entry which can be done by multiple people in the business.
  2. By putting in a sales invoice or a supplier’s stock bill, the software instantly updates the inventory levels, so that the business knows how much it has on hand and can have an inventory valuation. Without this, there is no way to get an accurate profit report, unless the business carries out a manual stock take which is slow, intrusive to the business operations and expensive in labour and time.
  3. So following on from this, every sale can be analysed in terms of profit and loss per line item. No more guesswork on which are your best and worst selling stock.
  4. Since sales are being tracked by item code, the business owner can predict when stock shortages are likely to occur and put in orders to ensure that the stock is replenished in time. It also means that predictions of required stock levels avoids overordering as well, so that valuable cash isn’t being tied up unnecessarily in stock.
  5. Analysis of customer buying is also a result of coding and tracking stock – you are able to see who has bought what over a period of time, and also able to see what they haven’t bought.
  6. Integrated web sites allow sales orders to be automatically created in the software, reducing double entry.
  7. Barcode scanning of stock when it is received from suppliers and picked for customers avoids the use of wrong stock codes.

 

Why do businesses move onto ERP systems for stock management?

  1. ERP allows much more complex stock tracking – for example, expiry dates, batch tracking, serial number tracking, different grades of stock. If you hold stock that can become obsolete or spoil over time, ERP can help you track stock by age, and therefore sell the oldest stock first. Or if you have to recall a batch of stock, then it can identify which customers bought that batch.
  2. It also provides for automatic landed costings to be allocated to stock, so that true stock margins (that includes all the costs of shipment) can be recorded and analysed.
  3. ERP enables you to plan ahead. ERP has rules about how much stock to hold, how much is on sales order, how much is on purchase order, how much is forecast to be used at particular times in the year and will generate purchase orders based on these factors – huge time saving and avoids the business running out of critical stock and disappointing customers. It also avoids both over-ordering, with the risk of stock become spoiled or obsolete, as well as tying up cash in unused stock.
  4. It allows for the tracking of stock, so that if stock is held in particular bins in a warehouse, a picking slip can be generated with the stock required and the location it is held in.
  5. ERP can create lists of the usual items ordered by a particular client, so that the items are simply ticked and added to the sales order – speeding up the sales order process and avoiding errors.
  6. ERP also keeps lifetime information on inventory, sales, customers, customer notes etc. and allows for analysis of such information.
  7. ERP software is generally more sophisticated in the use of barcodes and integrated websites and web ordering, standard and custom reporting, dashboards and drill downs.
    ERP software can provide for very complex pricing rules and time-based specials.
  8. ERP speeds up the ordering, receipting, sales order and picking processes, saving business money.