Manufacturing and distribution companies turn to enterprise resource planning (ERP) systems in order to increase their efficiency and improve their operations. Companies have varying needs when it comes to ERP. Some may be looking to decrease the time particular tasks take to complete, while others may be more interested in improving their financial predictions. Whatever the initial need may be, most companies in the manufacturing and distribution industry look to ERP to solve the universal problem of inventory costs.

The actual prices associated with keeping materials and resources in stock can be nearly unbearable, which is why a lot of organizations end up implementing ERP systems in the first place. In fact, a recent study by Aberdeen found that around 52 percent of manufacturers found that reduced inventory costs was a primary benefit of ERP technology. There are different ways that inventory costs can be felt, so consider the following types and the methods by which ERP systems serve to reduce them.

Ordering costs

Companies don’t being their lives with inventory in stock – they must be produced or refined from existing ingredients and materials. The costs associated with acquiring such products can be high and quite often involve credit and investments that make their procurement possible. An integrated enterprise resource planning system can be set up so that very precise records of what has been used historically (and potentially what will be needed going forward) are assailable, making correct orders and proper volumes a lot easier to come by.

Carrying costs

Once inventory has been produced, organizations are going to need to hold onto them and keep them ready for sale and distribution. Some products are cheaper to store than others – inert metals, for instance, won’t need nearly as much care and investment as live animals or volatile chemicals. Carrying costs are often dynamic and change based upon the price of certain supporting materials or rapidly developing technology, so it’s crucial to keep a close watch on them. This can be accomplished with a well-designed and properly implemented ERP suite of applications.

Shortage and replenishment

The distribution of inventory isn’t necessarily governed by what are referred to as inventory costs, but shortage and replenishment certainly are. This means when unforeseen circumstances arise or if stores of materials need to be quickly refilled, it can be very expensive to come by them. That’s because costs that weren’t carefully planned on ahead of time are often much higher than might be expected and therefore throw off the entire cycle of procurement, ordering and carrying. Use ERP technology to moderate these problems by keeping costs foreseeable and in line with prior projections.