Whenever an organization processes a transaction through software it is being processed in “real time.” From a user’s point of view, this transaction is completed immediately. This kind of processing is necessary for many industries and you can understand the need when you think about booking a flight or making a reservation.

Is real time processing something that is needed to manage inventory?

The answer is yes. First of all, in the example of a sales organization with a variety of clients, each sales person will generally be able to access the system directly. When an order is placed, the transaction is immediately processed and the inventory updated at the time of the order. If another customer is ordering the exact same item, the system should be up to date and will be able to show if the item is available and if it can be delivered. ERP software systems can run through real time transactions and take care of all of the accounting transactions simultaneously.

There are some practical reasons why the accuracy of the reporting of inventory in real time is not always that straight forward. In a typical scenario, a client may order an item online. While the order is being confirmed, the sales module of the system is consulting the inventory module regarding whether the item being ordered is available. If the item is available, the customer receives a confirmation email which states the estimated time for delivery, the price paid and the quantity ordered. The inventory software will then record the sale and update the stock total.

If the item that is ordered is not available, the client is notified and asked if they would like to place a back order. If the answer is affirmative, the purchase module is advised to order the item and a notification is sent to the purchase department. If you are looking at this scenario, then the ordering of the item is not processed immediately because although the purchase module has advised that the item needs to be stocked, the purchase department still has to issue the purchase order.

Once purchase orders have been submitted, the person in charge of inventory must stock the item by recording its receipt. They simply need to log a record of the order that has been purchased to update the inventory records in real time. This is all supposed to guarantee the accuracy of the inventory data immediately so the amount of the item and the price of the item seem to be the most important points.

Once the purchase order is placed, the supplier will confirm a received order and the inventory module is updated. Once the item is received, that event is recorded and the inventory module is again updated. The customer is then notified to complete the purchase of the item. The order is completed when the item is picked and packed for delivery (whether automated or manual).

Inventory management software must have an accurate statement for physical quantity of existing inventory. As a check on the availability of the item is conducted the theoretical quantity is what counts. If a customer orders 15 items of a specific product and the actual stock of that inventory is 40, then it could be stated that there is insufficient product for this customer. On the other hand, if an earlier customer ordered 30 items, there will be a shortage of 5 items. There are some ways that this problem can be dealt with but they are not covered in this article.

The way one calculates theoretical quantity is to take the (amount actually in stock) + (the amount that has been purchased but has not been received yet) to come to the amount sold and not delivered. Once the item has been sent to a customer, the quantity that has been delivered is then subtracted from the amount of items in stock and the amount sold but not delivered yet. Articles received from a supplier are then combined with the on hand quantity total and then removed from the amount purchased and not received yet

While this may seem simple, the reality is that a lot of companies struggle to keep an accurate record of their physical stock. Physical quantities recorded by ERP software do not always match the physical inventory. Some of the causes may include errors through the handling of items manually, theft, damaged goods, time gaps between the ERP listing and the counting of physical stocks. Real time is not always a guarantee of timeliness and accuracy so it’s important to back up software with accurate manual work.

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