In this article we look at the key features and capabilities that good inventory and purchasing software has to have. Inventory and purchasing management software are mission-critical requirements for wholesale distributors particularly given the turmoil in the global Supply Chain. If your inventory and purchasing software doesn’t match up, it is time to consider upgrading your system.
What is Inventory and Purchasing Software?
Inventory and purchasing software covers two key capabilities: inventory management, and purchasing management. An inventory management system tracks your quantity in and out of each product you stock, by warehouse, by location. This provides the ability to know, at all times, what your quantity available to sell is and where the stock is located. Purchasing management software helps you replenish your inventory at the optimal time to avoid stockouts and to purchase in the right amounts to maximize your ROI. You need software that delivers both capabilities to be successful.
Inventory Management Software
There are a variety of processes that are grouped under an inventory management system. Essentially these together include functionality to manage, control, track your inventory.
- Inventory Control: When you have products in your warehouse, you need to be able to see exactly what you have in the warehouse by group, by category, by sub-category, by product, what is committed, what is available to sell, where the products are located in the warehouse, what is coming in on purchase orders, etc. In a nutshell, you need to be able to categorize, search for, review the current stock levels and the stock history of all products.
- Inventory Tracking:Your suppliers send goods to your warehouse, which are then received into inventory. Increasingly these suppliers may be located overseas in Asia. In such cases the goods might pass from the manufacturer to the shipper to the freight forwarder to the delivery company or through many other steps. Often, you will take ownership of these products long before they arrive at your warehouse. You will be responsible for ensuring that they arrive where they are expected and when they are expected. Inventory tracking refers to the process of tracking the flow of goods from your supplier through the Supply Chain to your warehouse and/or from your warehouse while they are en route to your customers.
- Inventory Management:The overarching process of inventory management involves integrating the functions of inventory tracking and inventory control across multiple warehouses. Often inventory management also includes the integration with third-party systems like common carriers, regional carriers, rail carriers, LTL and FTL providers and integrations with steamship lines. Inventory management also includes internal warehouse transfers either in addition to or as part of a centralized purchasing approach.
Purchasing Management Software
Just as with inventory management, there are a variety of processes grouped under purchasing management. These processes include planning what inventory to purchase, how much to purchase and when, and the capability to execute and manage your replenishment purchasing.
- Reorder Planning: As products get sold you need to plan when to replenish products that are getting close to their reorder points. Reorder points are generally preset thresholds based, for each product, on the product’s safety stock level, the rate at which the product is sold or used and the lead time that it takes to get the product into the warehouse after a purchase order is placed with the vendor. The process of reorder planning seeks to balance the amount of inventory you purchase against the return on investment of tying up capital in inventory. The more inventory you purchase, the lower the likelihood of inventory stock-outs, lost sales, and dissatisfied customers. On the other hand, the more inventory that is sitting in your warehouse and not moving, the lower return it is generating. Ideally you want to maximize the number of turns of your inventory.
- Placing Requisitions: This involves first determining which pre-qualified suppliers can give you the best price and terms on the inventory you are seeking to purchase. Then once you have determined which suppliers to purchase from, you need to create purchase orders with the inventory line items you need to be filled by the supplier or vendor. Once placed the purchase orders need to be confirmed with the supplier to create a contractual undertaking to purchase those inventory line-items at the prices specified and subject to the terms and conditions agreed upon with the supplier.
- Receiving and Settlement: Once the goods are shipped by the supplier, they need to be tracked through the Supply Chain and then received into inventory. The receiving process involves ensuring that the inventory line items that were ordered are correctly received and booked into inventory at the right cost. Getting the right costs involves tracking all the elements of Landed Costs including the supplier’s price, the shipping and insurance costs, the clearing and forwarding costs, the import duties and tariffs, the local transportation costs, etc. These Landed Costs then need to be correctly allocated back to the specific products and capitalized into inventory. Lastly settlement involves ensuring that all receipts of goods as well as all Landed Costs are properly matched to purchase orders and the suppliers and/or vendors are paid.
Critical Inventory and Purchasing Software Features
There are several critical features that will drive the efficiency and cost-effectiveness of your inventory management and purchasing management capabilities. The investment in inventory is typically the largest outlay for any distribution business and being able to optimize this investment is often the difference between success and failure.
- Multi-company, Multi-warehouse: Your inventory management system must be able to handle inventory levels across multiple branches and multiple warehouses.
- Multiple Units of Measure: All products must be able to be assigned to multiple UOMs, so you can buy in pallets, stock in cases and sell in cases, boxes or by the each, as necessary. The inventory management system must be able to handle this automatically.
- Kits and Bill of Materials Products: The inventory management system should support finished and unfinished kits as well as Bill of Materials (BOM) products. You should be able to create unlimited numbers of nested BOMs.
- Product barcodes: All products in inventory should be able to be barcoded by product by UOM. Your inventory management system should be able to scan configurable compound barcodes and to be able to record the: product code, UOM, manufacturer’s Lot number, weight, expiration date and more in a single scan.
- Wireless Warehouse Management: Successful inventory control requires recording inventory movements correctly through warehouse operations that are labor-intensive and error prone. Your inventory management system should support handheld wireless scanning through picking, packing, shipping to fulfill orders, purchase order receiving and put-away, as well as physical inventory counting.
- Locations: The inventory management system must be capable of mapping warehouses by aisle, row, bin, shelf, or any other similar mapping system. This facilitates easy picking and easy put-away for more efficient warehouse processes and labor savings.
- Inventory by Location: A good inventory management system should be able to record and track not only inventory levels by product but inventory by product by location too. This makes it possible to manage inventory with bulk quantity locations, packaged locations, staging locations, etc.
- Asset Tracking: Your inventory management system should be able to track specific products by lot number and/or serial number to maintain a full transaction history of the products for recall or warranty purposes.
- Order Management and Processing: A strong inventory management system should be able to track orders through the whole order management process from orders through picking, packing, shipping and invoicing. You should be able to look at the waterfall of how your quantity on hand inventory of any product translates into your quantity available to sell.
- Returns Management: The inventory management system should include a full returns management and credit memo capability to ensure that returns are correctly recorded in inventory and your accounts receivable.
- Defective Inventory: Damaged items and defective items need to be tracked by the inventory management system. These may be able to be sold at a reduced price or returned to the vendor for credit.
- Partial Shipments: The inventory management system should allow for orders that allocate inventory to be partially shipped on a schedule as needed by the customer. This is particularly important for building materials suppliers that have to match their deliveries to a jobsite with the construction progress.
- Special Orders: To improve efficiency, your inventory management system must be able to link sales orders to purchase orders on a line-item by line-item basis. This then enable drop-shipping and/or cross-docking functions that can greatly improve efficiency and reduce investment in inventory.
- Back Orders and Future Orders: When you run short of particular products your inventory management system should be able to create and manage the resulting back orders and queue these up to be filled when inventory of these products comes in. You should also be able to create future orders that don’t allocate inventory until the future orders automatically become current orders that do allocate inventory.
- eCommerce: Your inventory management system should be able to control inventory levels of products in the warehouse and in multiple eCommerce stores. This integration should be real-time, so all transactions automatically update available inventory across all channels.
- Reordering Parameters: Purchasing management software must be able to set reorder parameters by product by warehouse based on the safety stock level, the sale or use rate, and the lead time. This ensures that purchasing is done timely and efficiently to avoid stock-outs and over-ordering.
- Automated Reordering Parameters: Often out-of-date reorder parameters based on assumptions rather than actual data lead to purchasing errors. To get the best results, your purchasing management software must be able to automatically update all the reorder parameters based on actual sales rates and actual lead times.
- Request for Quotations: Too often distributors rely on one or at most two suppliers for each product line. Under the challenging conditions of the current Supply Chain meltdown, this makes it hard to find the products you need at the right price Your purchasing management software must allow you to send RFQs to a wide group of qualified suppliers to secure the best prices, terms, and availability of hard-to-find goods.
- PO Tracking: Understanding where your goods are at all times requires being able to track all POs through the Supply Chain. Your purchasing management software should be able to track POs by vendor, by container, by vessel, by voyage, as well as record departure port, departure date, arrival port, arrival dates and much more.
- Landed Costs: Managing the importation of goods from overseas requires comprehensive landed costs functionality. Your purchasing management software has to support the Harmonized Tariff Schedule (HTS), allow unlimited landed costs, allow allocations of tariffs and landed costs to products by HTS code, by weight, by cubes or by extended price. All landed costs should be able to be captured, tracked, allocated and automatically capitalized into inventory by your purchasing management software.
- Settlement: A critical feature of purchasing management software is the ability to tie-out a PO against multiple receipts over time. The system must also be able to tie-out the multiple receipts against multiple supplier invoices that could span multiple POs
Do You Need to Upgrade?
If your inventory and purchasing software cannot do all of the above, you are not operating as efficiently as you could. In challenging times such as we now face with the turmoil in the global Supply Chain, this is a significant competitive disadvantage. If Supply Chain problems and soaring inflation lead to a recession as many are predicting, inefficient wholesale distributors will be forced to either close or be acquired. Upgrading now can ensure your business is one of the winners and can position you to outperform as things start to improve.
Contact us to learn more about Accolent ERP a leading Cloud-based inventory and purchasing software solution. Accolent ERP is optimized for wholesale distributors and light manufacturers and runs end-to-end in the AWS public Cloud. Accolent ERP delivers highly functional inventory and purchasing management software that can make your business more efficient.