ERP software systems and inventory management systems are often used synonymously by companies.
But beware: Although both ERP and merchandise management systems are based on powerful software, the orientations of the two systems differ significantly.
While a inventory management system focuses centrally on the flow of materials, an ERP software system incorporates all resources and makes them more efficient in order to optimize business processes.
The following article will explain the exact differences between ERP systems and inventory management systems, and which solution is right for your company.
What is an inventory management system?
Inventory management systems are computer-based methods used to record and process inventory in a goal-oriented manner. The central aim of an inventory management system is to ensure the efficient and effective control of goods flows.
Therefore, a merchandise management system should be used to ensure that the right goods arrive in the right quantity at the right place with the lowest possible cost.
In general, inventory management systems are widely used. While the application of such control systems was previously reserved for large retail chains, inventory management systems are now increasingly being used by small and medium-sized enterprises as well.
What is an ERP system?
Enterprise Resource Planning systems, also known as ERP systems, are complex tools used in business administration.
In general, ERP software has a wide variety of different functions and tasks.
Within an ERP system, it is possible to plan, control and monitor material resources, capital and personnel resources, operating equipment and communication technologies according to demand.
However, the exact functions that are possible with an ERP system also depend on the individual area of application and the framework conditions of the respective company.
In general, ERP systems can be modified to meet the specific requirements of the company. System updates are also easily possible.
ERP systems therefore enable companies to carry out and ensure complex business processes.
The special thing about this is: With an ERP system, every user has access to relevant data across departments – this ensures smooth operations.
A high-performance ERP software with integrated cloud thus enables worldwide access to provided and important operational information.
Functions of an inventory management system
The central focus of an inventory management system, lies in mapping the flow of goods within a company.
Modern merchandise management systems are characterized by various functions, including:
- Logistics and storage
- Needs assessment
- procurement
- Production (recycling, disposal, consumption monitoring, etc.)
- etc.
An inventory management system can also precisely classify and differentiate the recorded goods according to their various material and substance groups. For example, an inventory management system can categorize materials into the following groups:
- Excipients
- Operating materials
- Raw materials
- Spare parts
- End products
- Assembly components
- Joint products
etc.
Functions of an ERP system
ERP systems are more complex than inventory management systems and aim for overall resource planning of the company.
An ERP system offers extensive customization options and typically covers the following business areas:
- Logistics and storage
- Needs assessment
- procurement
- Materials management
- Human resources management
- Sales
- Controlling
- Accounting
etc.
A key feature of ERP systems is that the boundaries between different departments are eliminated and centralized into a single solution.
The advantage of this is that every employee has access to the same data at all times, so that internal information flows are optimized and supported by means of an ERP system.
Functional scope of ERP vs. inventory management system
ERP system
- Logistics and storage
- Needs assessment
- procurement
- Materials management
- Human resources management
- Sales
- Controlling
- Accounting
- etc.
Inventory management
- Logistics and storage
- Needs assessment
- procurement
- production
- etc.
Advantages of inventory management systems
Generally speaking, merchandise management systems have a significantly smaller range of functions than, for example, ERP systems.
Although this may initially sound like a disadvantage, this circumstance also brings some advantages.
A major advantage: the cost factor. Due to its limited functionality, a merchandise management system is generally much cheaper than implementing a comprehensive ERP system.
It is also true that the software, due to its limited range of functions, is quick for users to learn and therefore only requires a short training period.
Inventory management systems are generally designed for trading companies. These systems offer significant advantages for this sector. Using a modern inventory management system can, in some cases, also ensure the automation of the flow of goods and materials.
A variety of different processes are supported by an enterprise resource planning (ERP) system. These include, among others, warehouse management, procurement, sales, order processing, and returns management.
A good inventory management system can greatly enrich your company and especially your mail order business.
While ERP systems are often specifically developed and adapted for certain production processes, an inventory management system can focus entirely on the shipping process, regardless of the type of finished product. This has a positive impact on your customer service.
With the inventory management system, routine tasks can be automated and completed with just a few clicks, allowing you to benefit from significant time savings.
Inventory management systems are particularly well-suited for simple trading companies that do not have their own production facilities. They can also be beneficial for trading companies that have outsourced a large portion of their financial and HR processes to tax advisors and similar professionals.
Advantage of the ERP system
The greatest advantage of an ERP system is its versatility. While inventory management systems are primarily used in trading companies and are limited in their functionality, ERP systems are industry-neutral and offer benefits for every department. The ERP system thus functions as an all-rounder among software systems.
Another advantage of ERP systems is the simple, cross-departmental data management within a single system. A transparent and standardized database optimizes internal business processes and ensures your company’s long-term competitiveness.
Inventory management system and ERP system compared
| Topic | ERP system | Inventory management system |
|---|---|---|
| Future | Future-proof software | Only conditionally suitable for the future |
| Industries | Generally suitable for all industries | Only suitable for small manufacturing and retail businesses |
| Functions | In addition to inventory management functions, it also covers personnel, resources, accounting, and much more. | Demand forecasting, warehousing, logistics, and procurement of goods. |
| Costs | Costs are difficult to estimate, but higher than with an inventory management system. | Average: 30 euros per month per user. |
Although inventory management systems and enterprise resource planning (ERP) systems are often used interchangeably by businesses, there are clear differences between the two software solutions.
Below, we compare inventory management and ERP systems:
Future orientation
Inventory management system: An inventory management system is only suitable to a limited extent for the future, because at the latest with the growth of the company, further software tools and functions to secure the operational process are indispensable.
ERP system: An ERP system is considered a very future-proof software. This is partly due to the fact that the software is generally highly scalable and modifiable.
Industries
Inventory management systems: As a rule, inventory management systems are only designed for small production and retail companies.
ERP systems: ERP systems are generally suitable for all industries. Depending on requirements, there are industry-specific solutions that can extend the software.
Functions
Inventory management system: An inventory management system has tools and functions for determining demand, warehousing, logistics and procurement of goods.
ERP system: Typically, an ERP system has a wide range of tools and functions that not only relate to inventory management, but also include personnel, resources, accounting, and much more.
Costs
Inventory management system: You should generally expect to pay an average of €30 per user per month for an inventory management system. The company’s one-time payment varies depending on the size of the sales department. An inventory management system is relatively inexpensive to purchase, but it also offers significantly fewer functions and tools.
ERP System: Due to the large number of different ERP packages, it’s impossible to give specific costs for ERP systems. However, it’s generally true that in addition to ongoing costs, the implementation and training phases also involve financial and time-related expenses. ERP systems should also be updated regularly. You can find more information in our article “ERP System Costs.”
The overview shows that an inventory management system is simpler and more cost-effective to use and purchase than an ERP system. Small businesses, in particular, often opt for inventory management software when starting out.
However, as soon as the company begins to grow and the tasks become more complex, businesses quickly reach the limits of their inventory management system.
Typically, a switch to a future-oriented ERP system takes place at this point at the latest.
Which solution is a better fit for your company?
Generally speaking, inventory management systems are primarily used in pure trading companies, while ERP systems, due to their versatility, can be installed in all business sectors.
However, it should be taken into account that purely trading companies are rather the exception these days.
In the technical wholesale sector, service and related aspects are becoming increasingly important in order to differentiate oneself from the competition.
The problem is that any additional offerings are difficult to implement with an inventory management system. Therefore, inventory management systems quickly reach their limits.
Furthermore, many trading companies nowadays are switching to selling their goods not only in their own stores, but also on the internet via their own webshop or via marketplaces such as Amazon and others.
In order for sales to be handled efficiently, companies must optimize their internal processes and network with trading partners in a variety of ways.
This networking is absolutely essential if you want to succeed in the market. However, it cannot be achieved with a purely inventory management system.
ERP systems offer the advantage of a wide range of functions that integrate all essential business areas. This allows you to design cross-departmental processes more efficiently and successfully.
Therefore, unlike a merchandise management system, an ERP system considers the company as a whole and, with ERP software, enables not only the flow of goods but also the monitoring and execution of finances, operating resources and human resources.
Conclusion
Whether it’s a merchandise management system or an ERP system – which software solution ultimately best suits your company depends entirely on your requirements.
If you would like to test an ERP system with inventory management functionality free of charge, you can download our ERP system AvERP for free.