Because inventory is often one of the largest numbers on the balance sheet, effective inventory control and management is a vital function to help insure the continued success of distribution and manufacturing of companies.
The effectiveness of inventory control is typically measured by how successful a company is at:
- Reducing inventory investment
- Meeting its customer service goals
- Achieving maximum throughput and cost containment
On paper, the concept of inventory management seems easy enough. In simple terms, it can be summed up as the process of determining what items to stock, how many of each item should be kept on hand, and when orders should be placed for more.
Unfortunately, inventory management is much more complex in practice. The factors that complicate the process fall into two broad categories:
- Conflicting objectives across various segments of each company
- The tentative nature of both supply and demand
Inventory Management Optimization
Nonetheless, despite the best efforts to effectively plan inventory ordering, stock-outs and stock overages happen. The frequent occurrence of stock-outs and stock overages indicate that inventory levels have not been optimized.
Enter the inventory optimization system. These emerging technologies are the supply chain management mechanism used to mathematically calculate where and when inventory should be deployed to satisfy predetermined management objectives. They’re designed to better classify:
- Stocking levels (buffer, replenishment, overage) based upon an analysis of past demand,
- Augment supplier management based upon past supplier performance
- Improve demand forecasting going forward
ERP solutions ,such as Sage ERP 100, have also provided new and improved ways to manipulate the data within customized financial reports that offer the potential for:
- Deep insight into customer behavior
- Operational trends
- Ways to change to more efficient business models
The concept has always been about the ability of a company to use the massive amounts of data generated to become more agile and responsive—and ERP systems have advanced steadily to help them do that.
Optimized Inventory Levels Based Upon Better Decisions
Ultimately, inventory optimization depends upon decisions made by inventory specialists and senior management based upon several considerations unique to their companies.
Using sophisticated tools to make those decisions helps management more accurately balance the trade-offs between the costs of a stock-out versus the costs of overstocking.
That means the capacity of the inventory management tool to adjust recommended stocking levels dependent upon variable risk tolerance comes into focus.
Contact our Sage 100 ERP Team
Would you like to learn more about Sage 100 ERP’s Custom Office module? Please contact us online.
Image courtesy of Sura Nualpradid / FreeDigitalPhotos.net