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Inventory management software helps manufacturers meet customer demand

Today's inventory management software goes beyond simple tracking of orders, finished goods and materials. It can also optimize inventory levels and locations and tap into demand data to improve forecasts.

Though paper and pencil maintains a dogged hold on some companies, inventory management software has been around for decades. These computerized inventory tools help track and control existing elements on both sides of the supply/demand equation while letting you reallocate inventory manually to respond to changing demand. 

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Materials resource planning (MRP) and enterprise resource planning (ERP) software has long supplied the basic data on raw materials, parts, and finished goods, as well as such demand indicators as purchase orders. Advanced planning and scheduling (APS) software handles inventory of the raw materials and components used in manufacturing.

But today, more companies are replacing their old paper, spreadsheets, and custom apps with "smarter" inventory management software. Its ambitious purpose: reduce inventory carrying costs while improving fill rates and customer service. Inventory management software can help move the right amount of inventory to the right place at the right time, and at the lowest possible cost.

There are two principal varieties, available standalone or in ERP and supply chain management (SCM) suites.

  • Inventory planning software typically includes forecasting and replenishment modules, and can manage target inventories, incoming supply, and expected demand while segmenting inventory according to such metrics as profitability and lead time. Replenishment modules help to determine the safety stocks that are needed at various points along the distribution chain to satisfy orders at a given fill rate.


  • Inventory optimization software, in contrast, employs complex algorithms to recommend the best locations and quantities for meeting forecasted demand, across the entire supply chain. "The benefit is a significant reduction of inventory without having to do a lot of structural change," said Nari Viswanathan, an Aberdeen Group vice president/principal analyst. But some experts say inventory optimization software hasn't been widely adopted, in part because it can be tricky to use and is often not well integrated with other inventory management and demand planning software.

Increasingly, the value of inventory asset management software is being enhanced through improved integration with ERP and demand planning software. For example, you can feed your inventory target into an APS to improve its accuracy. Warehouse management systems (WMSs), which handle the movement and storage of inventory in a warehouse, are expanding beyond warehouse inventory management to incorporate information from transportation and manufacturing systems.

In reality, the categories aren't so neat. Some inventory management software contains rudimentary demand planning, and vice versa.

The latest trend is to integrate demand planning with inventory management software -- along with the demand-side and supply chain "cultures" that use these tools -- so each can augment the other. Salespeople can get information from inventory management software to confirm supplies before planning promotions. Conversely, inventory managers can respond more quickly to changes predicted by demand forecasting software.

Instituting a sales and operations planning (S&OP) process, perhaps supported with dedicated software, can bring these inventory and demand planning systems under one umbrella.

About the author: Freelancer David Essex has covered information technology for BYTE, Computerworld, PC World, and numerous other publications and web sites.

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