In our previous blog, we had talked about basics of Finance and Accounts module in ERP (http://mentorsunlocked.com/mu-primer-series-1-basics-of-finance-and-accounts-module-in-erp/ ). In this blog, we will talk about essentials of inventory module. MRP software were predecessors of ERP software. The initial ERPs focused on integration of material resource planning, manufacturing planning with finance and accounts. Later other modules, such as Sales and HR got added. Inventory management was crucial to prevent loss of sales due to stock outs, reduce shutdown times due to stock out of raw materials, consumables or maintenance material. Inventory control was essential to reduce investments in Inventory. Practicing “Just in Time” principle meant a close watch on inventory and real time information on stock levels of finished goods and raw materials. This also led to increased demands from Inventory management software such as
- advanced level analytics to identify trends in inventory, resources and warehouse shelving and picking,
- inventory audit with records of regular inventory counts/cycle counts, tracking sheets for physical counting and RF support for counting processes.
The inventory module integrates with all other functional modules in ERP. Like all modules in ERP, inventory module also requires some basic information for setup such as roles and access rights of users, item codes, warehouses, business rules such as replenishment levels based on analysis of past data, future plans and categorization of items such as FSN, Critical and essential or as per production policy etc.
ERPs allow both real and virtual warehouses to be created. For example, if a company has a paint tank/ or oil tank then the tank can be taken as a virtual warehouse with only top-ups or material drained can be taken as consumption. Based on the capacities of the ERP, the inventory module can be configured to track each item by its attributes, by lot number, by supplier/ vendor, sale/ purchase order etc. ERPs also allow integration of other technologies such as Barcoding/ RFID Electronic scanning at all stages, that is from receipt of material, production and dispatch to track material movement. This helps in reducing errors.
Some of the processes that are integral to Inventory Module are
- Issue of material from inventory such as First in First out, Last in First out or Expiry near First out. This also affects value of consumption and value of inventory.
- Indenting of material – preparation of indent, review and approval both at user department and in inventory management department.
- Receipt of material, quality checks and acceptance of material.
- Process to deal with rejects such as acceptance after defect rectification or outright rejection.
Most ERPs have Production Planning and Material Planning functions built in them. Setting up of inventory module requires understanding and documentation of functional needs. For example, a manufacturing company discovered that it had inventory levels of Rs. 60 million when ideally it should not have been more than Rs 25 million despite successful implementation of ERP. Data based policies that are regularly updated can help ensure that business systems are relevant to the needs of the organization.