How to Use Xero in Manufacturing and Inventory Management?

Xero is one of the most widely used accounting systems among small businesses. Although the software also boasts some inventory management functionality, serious manufacturers and distributors need to find another way to make it work for their companies.

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Accounting software in manufacturing and inventory management

Accounting software plays a crucial role in manufacturing and inventory management by facilitating the handling of financial transactions, keeping financial records, tracking orders and costs, and to an extent, tracking inventory levels. 

Using accounting software enables companies to achieve a high degree of automation in many processes, improve data accuracy, and comply with industry regulations. In addition, having a clear real-time overview of the company’s finances allows managers to make better-informed business decisions and deal quickly with accounts payable, cash flow problems, etc.

Because of the need to comply with financial and tax regulations and to ensure efficient bookkeeping, accounting software is one of the first types of software rolled out in manufacturing and distributing companies. For small businesses, two global players offering accounting software are QuickBooks Online and Xero. In this article, we will look into the latter.

Also read about using QuickBooks in manufacturing.

Using Xero in manufacturing and inventory management

First of all, Xero is perfect for managing the accounting side of any small business. But although many manufacturers and wholesalers use Xero to also manage other parts of their business, it is not nearly enough to accommodate all the needs of a growing company. Usually supplemented with an array of different spreadsheets, this kind of management system soon turns from a painkiller into a really bad headache.

While small retailers and simple e-commerce companies can mostly make do with what Xero has to offer in the inventory management department, manufacturers and distributors need advanced inventory and manufacturing functionality.

Let’s break down the general functionality required by those types of businesses:

Sales and quoting

Distributors and manufacturers need effective CRM functionality to streamline their sales process. This includes simple things such as managing customer data, creating quotes, sales orders, and invoices, checking stock levels before making a sale, etc. which can be easily done in Xero. On the other hand, what Xero does not offer are manufacturing sales essentials such as production cost and lead time estimations, product configuration, order status tracking, sales statistics generation, and more.

Purchasing

As it is with the sales functionality, Xero offers very basic procurement functionality, such as purchase order creation and simple order management. Distributors and manufacturers, however, also need supplier management tools that allow them to consider lead times and tiered prices, evaluate supplier performance, analyze supplier prices, and track purchase order statuses.

Production planning and scheduling

The core of manufacturing operations management, production planning and scheduling software is essential for ensuring well-organized and effective manufacturing workflows. It is also something that Xero totally lacks. Production planning starts from defining the bills of materials of your products, which are then tied to your inventory, procurement, and HR modules, allowing the system to determine the optimal time slots for scheduling the production activities according to resource availability and supplier lead times. This functionality and much more can be obtained, however, by integrating Xero with an MRP or manufacturing ERP software.

Inventory management

Accurate and effective inventory management is vital in any company that manufactures and/or sells physical products. While Xero has some useful inventory management functionality such as stock level tracking, barcodes, inventory valuation, and inventory count assistance, it lacks the tools for proper raw material and WIP inventory control, expected and booked stock, traceability, and inventory analysis needed by serious manufacturers and distributors. Here again, an MRP or inventory management software integration would fill the gaps.

Reporting and analytics

Collecting and analyzing data is paramount for companies on a growth path as it provides managers with insights related to the performance of various parts of the company as well as how to improve. While Xero has sufficient financial reporting available, it really cannot do much more. A manufacturing ERP system, however, can process your inputs to provide you with data and statistics related to everything from production scheduling accuracy and the performance of specific SKUs to changes in unit costs and the production efficiency of certain workers or pieces of equipment. 

Accounting

Although Xero has nearly everything small manufacturers need in the accounting department, there are still some things it misses. These bits of manufacturing accounting such as calculating the cost of goods manufactured (and thereby the cost of goods sold), accounting for ordered goods yet to arrive or sold goods yet to be delivered, and allocating manufacturing overhead and direct labor costs to finished goods can only be done by integrating Xero with a manufacturing ERP system.

MRPeasy – the perfect Xero add-on for small manufacturers and distributors

Do not let the missing functionality deter you from using Xero. Because this is not what Xero was made for. On the other hand, what Xero was made for – accounting – it does impeccably. And being very well aware that they cannot fulfill every need their clients have, Xero has built up an excellent integrations ecosystem with tens of third-party inventory management systems, CRM solutions, and manufacturing ERP systems.

Among those, one of the most comprehensive, user-friendly, and affordable manufacturing and inventory management solutions for small businesses is MRPeasy. Here is why you should give it a try:

Fulfills all small manufacturing and distributing needs

Remember the functionality manufacturers and distributors need that Xero cannot provide? MRPeasy covers it all. Quick quoting, effective purchasing, accurate production schedules, full traceability and visibility in the supply chain and inventory, bills of materials, reorder points and low stock notifications, useful reports and statistics from across departments, and manufacturing-specific accounting – all this and more is available in the software. The system is universal, meaning that it is not tied to one manufacturing industry specifically. Rather, it aims to give all small manufacturers and distributors the tools they need to succeed.

Automates hundreds of hours worth of tasks each month

MRPeasy is made to eliminate continuous administrative and data entry tasks. Some examples include:

• Calculating material requirements, production costs, and lead times. Set up your bills of materials, production routings, production cycle times, and supplier prices and lead times and the system can easily determine how much a customer order would cost and when it could be delivered. MRPeasy users report a 42% average increase in on-time deliveries.
• Creating quotes, customer orders, manufacturing orders, purchase orders, and sales invoices separately. MRPeasy allows you to convert a quote into a hard customer order, automatically generate MOs and POs for missing products and materials, and create a professional invoice.
• Inventory tracking. MRPeasy’s barcoding functionality allows you to generate barcode labels for your inventory items and scan them using a smartphone, tablet, or a dedicated barcode reader. Just scan a barcode and choose an action in the app to record it and automatically update your inventory levels. Each inventory movement is recorded and full traceability is achieved with minimal effort.
• Configuring complex products. MRPeasy’s multi-level and matrix BOM functionality can significantly cut the hours spent on configuring complex products during the sales process, and scheduling the production of said products. The product configurator allows you to choose the required pre-defined parameters from a drop-down menu and instantly schedule the manufacturing activities, including the production of subassemblies.

And this is just a small part of the level of automation MRPeasy could provide. A recent MRPeasy case study done with the American industrial chemical manufacturer Bernard Labs revealed how after implementing the software, the company saw no need to replace two administrative employees following their retirement. With a headcount of 22, this meant significant savings that the small manufacturer was able to divert toward growing the company.

Ensures efficient communication

MRPeasy is cloud-based, meaning that the software can be accessed from anywhere with an internet-enabled device such as a computer, tablet, or smartphone, and an internet connection. This ensures effective collaboration across the company even in cases of remote work, establishes a single source of truth, and effectively eliminates the need for paper documents as well as for corroborating different documents to get to the bottom of things. With MRPeasy, each employee gets instant access to the information pertaining to their job while each module and function of the software communicates with each other to share and update information across the operation. For example, when a material order is marked as delayed, it instantly reflects in the production schedule, providing you with a new delivery date that you could quickly communicate to the customer. 

Integrates with various e-commerce, CRM, and fulfillment platforms

Just like Xero, MRPeasy focuses on its strengths: manufacturing and inventory management. To create a more comprehensive business solution, the software has native integrations with e-commerce platforms such as Shopify, WooCommerce, BigCommerce, and Amazon; CRM systems like Pipedrive and Salesforce; fulfillment apps Ware2Go and ShipStation, and of course accounting systems QuickBooks and Xero. Additional integrations and customizations are made possible via Zapier or the open API accessible in the Unlimited package.

Affordable for businesses of any size

MRPeasy’s packages range from $49 up to $149 per month per user, making it the absolute best when it comes to balancing functionality and affordability. In addition, when you exceed 10 users, the following users will only cost $79 for a package of 10 users. This allows companies to roll out the software to include line workers without costing an arm and a leg. MRPeasy also offers a free 15+15 day trial with no credit card information needed.

Key takeaways

• While an accounting system like Xero or QuickBooks is often the first dedicated software adopted in a company, manufacturers and distributors quickly discover that they need more advanced business management functionality.
• This functionality includes sales and quoting, purchasing, production planning and scheduling, inventory management, reporting and analytics, and even some manufacturing-specific accounting.
• These vital tools are present in modern cloud-based manufacturing ERP systems such as MRPeasy.

Frequently asked questions

Read more about MRPeasy and Xero integration.