How Can An ERP System Help Retailers Improve Inventory Management?

Illustration of various modules in an ERP system

Managing inventory may feel like a never-ending balancing act, but that’s where an ERP system comes in. The all-encompassing data management program can help retailers improve their inventory processes with real-time information, allowing companies to manage costs and grow strategically.

Here are three ways retailers can use an ERP system to mitigate the issues that come with managing inventory. 

  1. Integrate point-of-sale systems among different retail locations: Without ERP and POS integration, bricks-and-mortar retail chains don’t know how much each store sold until the end of the day or at another designated time. While management could call other store locations and get the information over the phone, real-time data integration among POS systems eliminates this extra step. So, when a customer purchases a lawn tractor, for example, the home office should know immediately and not have to wait until the next day to find out. 

    An integrated POS system also decreases the risk of errors caused by manual data entry, according to a post on the ERP Software Blog. Consider this scenario: A company that sells products through Amazon uses three different software systems. The first is used to power the e-commerce site, the second handles the POS system and the third handles the company’s ERP function. However, to fulfill the customer’s online shopping order, the data must be entered manually into the ERP system. In addition, the company must keep the customer informed about the order status and shipping, which may require manually entering this information into the e-commerce system. If along the way, the customer is not communicated with, or potentially receives the wrong item due to a manual data entry error, that person is likely to share the negative experience on social media. Integrated systems help ensure order accuracy that can result in customer satisfaction.

  2. Prevent stock outs and excess inventory: Another benefit of an integrated POS system is monitoring in real time when inventory is full or out of stock. After a retailer enters in the inventory values in an ERP system, the software can automatically order products when stock is low or approaching the safety stock level. An ERP system can recommend the amount to order and also warn about critically low inventory. Then, to replenish the products, the ERP system can factor in lead time from the vendor or estimate how long the current inventory will last based on seasonally adjusted historical sales information.

    The ERP system also can adjust to a just-in-time inventory system if it optimizes cost savings for the company. For example, the system can factor in order multiples as well as economic order quantities to take advantage of lower shipping costs while still ensuring that sufficient stock (based on anticipated demand) will be on the shelves for the time that transpires between placing the order with the vendor and the day that the stock actually reaches the store. Quantity discounts may also affect your replenishment strategy.

  3. Record historical data to improve seasonal and annual orders: An ERP system can effectively forecast inventory needed when retailers run promotional and seasonal events or place annual orders. Another post on the ERP Software Blog explains the inputs evaluated by ERP software to predict the inventory needed: two to five years of historical sales data; supplier forecasts; seasonal and promotional factors; and business constraints, such as warehouse space limitations. 

By following these tips, retailers can improve their inventory management and operate more efficiently.

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