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Buyer's Guide

by Daniel Harris,
Market Research Associate
Last Updated: March 23, 2017

Inventory management is one of the oldest uses for computer systems and it remains one of the most complex issues. As a result, we track more than 100 different systems. We wrote this buyer’s guide to help buyers shed some light on this market.

Here’s what we’ll cover:

What Is Distribution Inventory Management Software?
Common Features of a Distribution Inventory Management System
What Type of Buyer Are You?
Benefits and Potential Issues
Market Trends to Understand
The Vendor Landscape

What Is Distribution Inventory Management Software?

Ross Perot said “Inventories can be managed but people must be led.” Both parts of the sentence are important in understanding inventory management software. Distribution inventory management software helps companies buy, track, deliver merchandise and supplies. It tracks the on-hand, allocated and ordered quantities to show actual stock levels. It shows the current value, and provides historical and trend information for planning purposes. Inventory management software helps balance supply levels so that sufficient quantities are on hand to supply customer needs without having too much capital invested or having inventory that goes out of date or spoils.

The inventory system performs other important tasks. The first is that it produces the picking information to fulfill customer orders. Second, it provides receiving information to make sure that orders placed with vendors are completed successfully. Inventory control systems are used for tracking reorder points, managing lot number tracking, generating order advice or even placing orders automatically. Order management systems can integrate with inventory systems to check quantities on hand or lead times for out-of-stock items. Inventory applications also track important inventory value information for accounting purposes.

Common Features of a Distribution Inventory Management System

The five features below are common in most modern distribution inventory management systems:

  • Front counter operations. This feature helps handle the necessary transactional tasks, such as processing orders, calculating taxes and printing receipts.
  • Warehouse and inventory management. These features work together to help distributors monitor inventory levels, manage receiving and shipping and determining optimal reordering.
  • Transportation management. Users can manage the scheduling of shipments and routes to improve logistics and reduce costs.
  • Customer management (CRM). A CRM in distribution keeps a log of retrievable customer information to improve speed and satisfaction. Users can also produce reports to identify purchasing trends.
  • Distribution accounting. This feature helps handle all the revenues and expenditures, and offers a general ledger to track all transactions.

What Type of Buyer Are You?

Before evaluating different solutions, you’ll need to determine what type of buyer you are. Over 90 percent of buyers fall into one of these four groups:

Full-suite buyer. These buyers value the seamless integration of data and processes that comes from having one provider for all functions. For example, a top full-suite system for accounting, customer relationship management and inventory management can turn quotes automatically into orders and then generate picking lists, shipping labels and invoices. These buyers favor complete software suites like Oracle, SAP, Sage ERP or Microsoft Dynamics AX.

Multiple warehouse operations buyer. These enterprise buyers run multiple facilities and need to track and balance inventories over a geographical area. The buyers require software that can balance inventory between warehouses while strategically placing it closest to the probable customers. Finally, the software must determine the best choice between drop shipping split orders between warehouses or centrally receiving inventory and then shipping to warehouses.

Departmental buyer. These buyers are distribution specialists for firms that have an internal distribution network. They may only sell to their own outlets, but they must contend with multiple suppliers, inventory issues, competing corporate customers and transportation decisions similar to commercial distributors use.

Small business buyer. These buyers may work for distributors or wholesalers or may have a distribution component as part of their company. They usually have smaller numbers of clients, suppliers and inventory and may include some assembly or production components but still face the same basic issues as large-scale distributors. They may be using dedicated systems or an integrated solution.

Benefits and Potential Issues

Effective inventory management is a critical success factor for distributors. You can expect the following benefits from an inventory management system.

Time savings. Inventory management systems can save time in all aspects of handling inventory. Slotting analysis saves time by having frequently picked items placed where they can be quickly located. Picking systems speed the process to fulfill customer orders. Receiving systems allow for the efficient inflow and processing of inventory.

Capital savings. Inventory management systems can help business reorder stock and supplies at economic reorder amounts. 

Integration with accounting systems. Integration with the rest of the accounting system is hugely important. Information shared with the general ledger keeps balance sheets current. Inventory reorders trigger entries in purchase order and accounts receivable. Pick information and shipping information is shared with accounts payable.

There are two key issues with general ledger systems. The first is the cost of implementation and maintenance. The inventory must start from a clean physical inventory, which can be time consuming and labor intensive. Periodic inventories must be conducted to ensure that the physical count agrees with the system count.

The second challenge is discipline. It is very, very easy to grab a piece of stock from a shelf for a customer and “catch up on the paperwork later.” It is easy to do and, as a manager, it is easy to excuse. But it can have a devastating effect on an inventory management system. And when it is part of a integrated system, the errors spread all the way through.

Market Trends to Understand

Inventory systems continue to evolve and are one of the most dynamic parts of ERP and supply chain systems. The following are trends to consider when selecting a system.

Pick to light technology. Pick to light (PTL) is a paperless picking technology. Instead of printing a pick list, arrays of lights on the ceiling and shelving indicate the location of the items to be picked. Digital displays on the shelf give the quantity to pick. 

Intelligent inventory tagging. The use of one-dimensional bar coding for equipment and inventory tagging is well established in manufacturing programs. Recent systems use radio frequency identification (RFID), which can be read remotely to check inventory levels and to confirm equipment availability. Other systems use two-dimensional bar codes which contain descriptive information in addition to an identifier like a part number.

Advanced slotting analysis. Advanced slotting analysis uses historical inventory information, picking trends and warehouse shelving layout information to determine the most cost-effective placement of supplies. Slotting analysis can also ensure that dangerous items are not stored together, for example, ammonia next to chlorine, which could violate government regulations, insurance restrictions and common sense.

The Vendor Landscape

Inventory management systems vary greatly; buyers need to understand their scope and scale while evaluating inventory packages.

This type of buyer... Should evaluate these systems
Full-suite buyer SAP, Oracle, Microsoft Dynamics
Multiple warehouse operations Microsoft Dynamics, NetSuite, Infor
Departmental buyer Exact Globe, Geneva, ADS, Oracle, SAP
Small business buyer Blue Link, ADS, Infor, Abas

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Ten Steps Guide to Selecting Distribution ERP Software


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