Why do retailers need to switch to ERP for retail inventory management?
SAP Business One provides retailers with features that can enhance inventory management, potentially reducing storage issues and stockouts, and resulting in better product availability. It can also help ensure accurate pricing information for customers. This makes it an ideal ERP solution for Retail Inventory Management.
Cloud-based ERP solutions have the potential to simplify data management by utilizing cloud storage and processing, making it easier for businesses to access and analyze information. This improved accessibility to data could lead to more informed and timely business decisions. However, it's important to remember that the success of any software solution depends on its implementation and how well it aligns with a business's specific needs. Additionally, it's worth noting that cloud-based solutions may not be suitable for all companies, as other deployment models exist for ERP systems.
What is ERP in Retail?
The retailer has to perform several activities to ensure smooth operations. Retail ERP simplifies and automates processes. It is a real-time software solution created to connect and integrate the many business processes necessary to manage retail operations successfully.
Such software solutions enable the retailer to efficiently manage front and back office tasks, along with accurate tracking, stock keeping, etc. However, the uses of retail management software are not restricted to stock keeping and monitoring. Most software solutions are integrated with various other tools catering to different business processes.
Functionalities of retail management software include:
- Accounting software
- Human resource management software
- Inventory management
- Store management
- Customer relationship management (CRM)
- Business intelligence
- Warehouse and supply chain management
- Point of sales (POS) management
All of these functionalities provide a wholesome solution to small-scale retailers who want to adopt technologically advanced solutions but are on a tight budget. Besides these software tools, retail management software can be customized to fit the unique need of organizations.
What is inventory management in retail?
Retail inventory management is at the heart of any successful retail business. It is a mixture of strategically placing the right mix of products in the right place at the right time in the right quantity for customers. The retailer must never have too much or too little merchandise at any given time and must be able to accurately meet customer demands.
The whole concept is called retail inventory management, and it has many facets. However, effective retail inventory management benefits customers and helps retailers reduce costs, predict sales and demand patterns, and forecast demand. Retailers can also keep tabs on suppliers and closely monitor the supply chain. At a time when supply chain disruptions are more common than ever, retail inventory management has become an indispensable part of retail operations.
Types of Retail Inventory
A retailer handles different kinds of goods at different stages in the production process. Following are the kinds of inventories that retailers need to monitor based on whether they sell items for resale, produce their own products, or a blend of both.
1. Raw materials
If the retailer manufactures the products from scratch, they will have an inventory of raw materials. These supplies could be produced by a company or obtained from a provider.
2. Work in progress (WIP)
The next kind of inventory comprises semi-finished goods. As the name suggests, these products are not ready for sale and are in the production stage. Few companies procure semi-finished goods from suppliers and make the final arrangements to create a new product. At this stage, the retailer does not want to hold the goods in the line of production. Rather they want to complete the products and start marketing them.
3. Finished goods
Usually, resellers have one type of inventory, which is finished goods. However, these can also be produced by the company. These are marketable and can be sold to customers. They put a lot of emphasis on this stock in the Retail Inventory Management Software strategy.
4. Packaging materials
Although packing materials are not sold, they are a significant part of the inventory. These are used to protect the goods during transportation and sale.
There are significant challenges in maintaining, monitoring, and safekeeping each of these inventories, especially if it is done manually.
Challenges arising for not using ERP for retail management
One of the major problems that retailers face today is inventory management. As the supply chain is becoming more complex around the globe, with new players entering the market and new trade routes emerging every day, businesses want to tap into the new markets and capture larger market shares.
However, in order to meet the demand, they have to produce and store a large volume of inventory, which, if mishandled or neglected, can lead to huge losses for the organization. Today inventory management has become a more vital business activity than ever before. Therefore, manually managing inventory can be a Himalayan blunder. Here are some of the challenges of manual inventory management
1. Poor inventory planning
A lot of times, the problems of wastage, understocking, and overstocking arise due to poor inventory planning. The stock levels were not checked properly, so either more or fewer items were produced or ordered. Without an intelligent ERP, it is challenging to keep track. The money spent on inventory is locked in even if the sales are low, which impacts a business's profitability. Keeping the proper amount of inventory on hand is essential for a business's financial stability. Overstocking can also cause the accumulation of obsolete stock. However, understocking leads to poor order management and generates customer grievances.
2. Faulty predictions
There are different times during the year when businesses have to predict sales and prepare the stocks, especially during festivities. Such predictions are usually made by studying past and current trends. However, man-made predictions can be erroneous.
3. Paperwork and manual billing
Managing all the inventory management data, purchase orders, and invoices manually is difficult. It takes up a significant amount of productive time, and there is a possibility of leaving out some critical information.
4. Outdated products
As trends alter, products will unavoidably undergo changes. One of the retailers' challenges is managing and selling outdated or obsolete goods. Maintaining out-of-date inventory can be expensive and take up valuable warehouse storage space.
5. Growing competition
Thanks to technological advancement, starting a retail business has become simpler. But to stay in business and relevant, small businesses face tough competition and are obliged to enlarge their warehouse space to meet the soaring demand. Maintaining product supplies, staying ahead of the competition, and responding to customer complaints and requests are all priorities. However, performing these tasks manually with full accuracy is questionable.
6. Storage facility management
One of the vital parts of inventory management is storage facility management. Developing a plan, selecting ideal locations, and using a manual process will all cost a lot of time and money without an automated inventory system.
7. Lack of a central inventory base
Imaging switching between tabs to check orders, current data, finances, and other details. It can get hectic and cause unfortunate errors. Inventory managers often lose patience, and managing requests and maintaining a record of the items in stock is complicated.
8. Inaccurate data
Data inaccuracy leads to understocking and overstocking. It also creates dissonance amongst the customers. Warehouse and inventory management can give rise to an overwhelming amount of data that is hard to track and report. However, in the digital age, information monitoring should be available with a swipe of the finger instead of skimming through long lists and directories.
9. Product line expansion
As a product line expands and additional warehouses are constructed, effective management of inventory supplies becomes crucial. Trying to maintain the stock list and track orders manually without access to real-time data can result in inadequate management. Inventory managers must evaluate orders, shipping information, and stock levels to allocate supplies properly to the areas with the highest demand.
10. Errors in process management
When a business is small and serves only a few customers, employing basic technology or manually managing inventory may not appear to be a significant challenge. However, as the company expands, the simplest tasks may become overwhelming and require additional help to complete while still fulfilling customer orders.
These are some common challenges a retailer encounters today when they do not use an ERP for retail inventory management.
ERP Solution for Retail Inventory Management
Inventory management is a crucial yet painstaking task for retailers. Cloud ERP software for retail inventory management helps them supervise their stocks per the demand variations. It also reduces wastage with features like batch tracking, among others.
Organizations can benefit from a wide range of insights by combining various data sources through ERP systems, including a better understanding of stock-keeping unit (SKU) performance trends. This data can help businesses make informed orders and create more accurate forecasts to meet future demand without maintaining excessive inventories.
Using ERP-powered inventory management enhances the efficiency of the supply chain. As a centralized system, it can automate routine tasks such as reordering and eliminate the need for commodities to be processed twice. Additionally, various associates, such as suppliers, may benefit from access to this system.
Keeps accurate counts
An ERP system is capable of monitoring and reporting various metrics such as average turnover rate, obsolete inventory, excess inventory, cost of goods sold (COGS), shortages, planned replenishment, and other performance indicators.
Pre-built financial tools
An all-encompassing financial management solution is integrated into the retail ERP systems. It consistently drives businesses towards greater organizational efficiency and productivity. It also facilitates continuous growth by providing in-depth business insights, streamlined and systematic operations, and the capability to adhere to risk management and compliance measures.
A better view of the supply chain
Through effective back-end integration, companies can predict shipment delays and avoid unexpected surprises and overpriced components. Linked ERP systems also provide the added benefit of synchronizing order and shipment data.
Gather historical data
An ERP system can use its historical record of purchases and sales to make efficient inventory forecasts. This feature comes in handy during seasonal and promotional events and annual orders. The system evaluates the following entries: past sales data spanning two to five years, supplier projections, seasonal and promotional factors, and company constraints such as warehouse capacity limitations.
How to implement ERP Retail Inventory Management?
An ERP software solution for retail inventory management can be launched in three simple steps as follows:
Creating a record
For creating the record in the ERP system, start by consolidating all relevant operations and information into it. If you are using a legacy system or another software, you can also integrate that with the new ERP and update data. Most ERPs are flexible and allow users to integrate other software and systems. The new ERP shall act as the centralized data platform.
Improving the record
To explore the maximum features of the ERP software solution and improve it by feeding advanced and complex data. You can incorporate more advanced payroll, purchasing, and analytical components. It is essential to store all of these functions in a unified system of records to maximize efficiency.
Adding advanced ERP features
To expand and adapt to shifting market circumstances, leverage the planning, analytics, and quality management features available in an advanced ERP system. Due to their ability to handle numerous tasks and industries, ERP systems are capable of managing multiple aspects of a business. Modern and sophisticated ERP systems are embedded with artificial intelligence, predictive analytics, etc. You must utilize these features to the fullest.
If required, customize the ERP for more functionalities.
Important Features of an ERP Inventory Management System
The critical features of an ERP inventory management system depend on the solution you choose for your business. To determine what features are vital to your customized solution, you can adhere to these five following steps:
Why are you installing the ERP?
Start by considering the goals of your business and stakeholders and analyzing market trends, external opportunities, internal resources, and core strengths are critical steps in developing a business case. Identify the long-term goals and what you want to achieve through the ERP. It will help you determine how the purchase can contribute to your long-term success.
What is the project's scope?
Once you know the purpose of the ERP, you need to establish the project and feed the required data into the system. Some of the important questions you need to ask while setting up the project include: Which data sources should be merged to provide the ERP inventory management solution with vital KPIs? Which associates, such as suppliers, will want access? You can also make a list of the skill set required to achieve the desired results.
Analyze the ROI
By investing in inventory management technology, businesses can optimize their inventory levels, reduce waste, and streamline operations. Furthermore, advanced inventory management technology can provide valuable insights into consumer behavior and market trends, allowing businesses to make data-driven decisions and improve their offerings to serve their customers better. Identify the ROIs of investing in an ERP.
Create a vendor list
The success of the ERP will also depend on vendor expertise. Create a list of all vendors who meet your criteria and compare them across several parameters. Critical comparison will help you determine and finalize the most suitable vendor.
Here is a list of parameters for your reference
- Is the system straightforward to integrate, scalable, and flexible?
- What kind of training is necessary, and will the vendor provide training?
- Does the company offer test versions or free downloads?
- What is the annual or monthly cost of the program?
- What about maintenance?
- How soon will operations begin?
Wait for the results
Once you have developed the roadmap and launched the process, carefully monitor it, and check if you are getting the desired results. In case there is any dissonance or deviation, take immediate corrective actions.
Benefits of ERP for Retail Inventory Management
Now that you know why you need a retail ERP and how you can implement it, it is time to explore the most asked question: How will an ERP for retail inventory management benefit me? There can be several benefits of investing in a retail ERP based on its functionalities and features.
1. Proper stock keeping
An intelligent ERP lets you leverage its flexible architecture and implement different inventory management strategies within the system. The strategies, along with the ERP, enable your organization to manage the inventory effectively.
2. Omnichannel management
Retailers use several channels of marketing like social media, e-mails, blogs, websites, and offline media to reach out to their targeted customers. An ERP software solution creates a central repository of customer data that the retailer can later use to make data-driven decisions and enhance customer experience.
3. Customer relationship management
Using an ERP software solution in retail enables the enterprise to swiftly respond to customers and curate targeted campaigns using comprehensive customer data. It not only drives engagement but also creates a loyal customer base.
4. Precise demand forecasting
The analytics tools of modern ERP solutions give access to real-time data that lets you study the current trends more accurately. Additionally, it can also process previous data and make proper predictions.
5. Optimize payment gateways
Since most organizations have an online presence and customers are actively shopping online, an optimized payment gateway is a must. An ERP supports various types of payments.
6. Data collection
You no longer have to collect and enter data manually. Online processes will collect customer data and store it in the system.
Using an ERP system for Inventory Management
Efficient management of stock acquisition, sorting, and transfer can be accomplished by automating critical processes within an inventory management ERP system. The system considers the inventory needs of employees, customers, and suppliers to ensure appropriate stock levels are maintained.
ERP Inventory Diagram
Inventory management through ERP is explained in this diagram. Here you can see every unit has a specific duty. The ERP will assign the tasks to designated individuals. The ERP also acts as a centralized platform that enables communication across all units. It helps them function in concert.
Purchasing and distribution are two vital parts of a retail enterprise that can be easily managed by cloud ERP software. You can also tackle routined merchandising jobs without hitting a slump. Every specialized software program eventually connects with the retail inventory management ERP.
Best Practices for Managing Retail Inventory
Effective retail inventory management is not solely dependent on an ERP. As an organization, there are a few practices you must incorporate to ensure that the strategies and the advanced ERP solutions can work together to benefit your retail organization. Here are five best practices to follow
Identifying the KPIs
Identify and use key performance indicators (KPIs) over predetermined periods to monitor performance and achieve specific objectives. KPIs can be created for inventory carrying costs, inventory turnover rates, order status, tracking, and fill rates, among other items.
Using ABC analysis
It is an inventory organization method where the essential products are categorized as
- A goods requiring frequent replenishment.
- B items being valuable but only required once a month.
- C products being carried in large quantities and having low stock priority.
Tracking stock receipts
Avoid the hassles of unrecorded stock, unexpected stock outages, and payments for items not purchased by comparing product counts to purchase orders, checking for shortages or broken goods, updating stock counts in inventory management systems, and communicating with suppliers about any mistakes.
Invest in an inventory management system
Investing in an inventory management system or point-of-sale (POS) system can help automate processes, monitor the movement of goods, and improve efficiency, productivity, and accuracy.
Calculate minimum stock threshold and maintain residual stock
Calculating the minimum stock threshold constraints is important for satisfying demand and reducing fulfillment delays. Residual inventory can be managed effectively by using season codes and style numbers in inventory management systems.
Is it safe to selecting ERP for retail inventory management?
How can Silver Touch help with retail inventory management?
With our extensive domain expertise and vast industry experience, Silver Touch has worked with several brands from different industries and assisted them in successfully implementing retail ERP software solutions and streamlining their warehouse and inventory management. Get in touch with us today to book a demo and see our retail ERP experts in action.
Inventory management is a key function in the retail industry. However, manual operations are often riddled with error and lead to faulty predictions and stock management. There are several challenges to not using an ERP for retail inventory management. However, an intelligent ERP with advanced technological features can remediate those roadblocks.
These software solutions are easy to implement. Following the best practices, retailers can cut costs, optimize operations and increase profitability. ERP for retail inventory management has been well-received by future-oriented retailers who want to pave the way toward long-term success and embrace digital transformation.
FAQs about Retail Inventory Management
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