The impact of ‘dead stock’ on a company’s return on investment can be devastating, and it is certainly worthwhile for companies to focus on reducing dead stock. Here are some of the dead stock issues faced by distributors, and how to minimise or eliminate them.
If you’re forced to order more of a non-stock product than your customer is willing to buy or pay for, you end up with leftover inventory that will significantly reduce your profitability on the non-stock sale or even cause you to lose money. Accurate forecasting and measurement of customer requirements is therefore essential. ERP systems with integrated stock control and CRM simplify these calculations by keeping tabs on customer demands and matching them with inventory ordering.
Recent research by Aberdeen Group shows that market leaders are looking to streamline processes, as well as optimise their supply chains. This means they can more effectively manage inventory, as well as keep prices for products in check. They have prioritised collaboration and service by getting a better understanding of customers’ needs.
The graph below shows market leaders’ success rates through integration.
Griffiths Equipment’s use their ERP system to enable the efficient and accurate fulfilment of customer orders, and the sharpening of inventory management processes to save time and money. Costly order errors have been reduced by 80%. “Our business is a leader in its field because we’re nimble on our feet,” says Managing Director, Peter Griffiths.
Many distributors stock a product specifically for a single customer. Often distributors don’t realize that a customer has stopped buying one of these items until physical inventory time, when it’s discovered that there’s a lot of that product still unsold. It’s critical for distributors to review the stock status of all customer-specific inventory at least once a month to avoid the possibility of this material silently dying on the shelf.
Introducing new products is exciting, but often the remaining inventory of items made obsolete by the new product is overlooked. When this old inventory is finally discovered, the only way to liquidate this stock is to sell it for scrap value. As part of your policy for introducing new products, be sure to insist on a plan for liquidating the remaining inventory of any obsolete stock. You must also be sure that you’re carefully monitoring market trends – another job for ERP.
Yogurt products exporter EasiYO uses its ERP system to garner valuable insights and predict sales trends from geographical and demographic data. “With dairy prices spiralling worldwide, the need to constantly review margins, pricing and sales trends has become enormously important,” says David Granger, General Manager.
Many companies only focus on maximizing their gross margins. But is this a true measure of corporate profitability? Many distributors are surprised to learn that inventory turnover is just as important.
An integrated inventory management solution can help you make informed decisions, streamline processes and optimise your inventory management. This not only helps you stay competitive and efficient, but ensures that you free up working capital, where possible.
With improved visibility into supply and demand, businesses can make critical decisions about where to reduce inventory, while still maintaining the highest levels of customer service. Integrated inventory planning tools provide the forward-looking data and intelligence that allow businesses to be proactive about the future – instead of being reactive based on the past.
Article reproduced via MYOB Australia.
Transitioning from a small to a medium business is a process that leads many start-ups to failure. As businesses grow organically, they begin to outgrow certain elements of their business, such as staff numbers, premises, business processes, software/storage, accounting practices, stock management and more. There are many important aspects that a business owner needs to consider when making this transition, and the process will inevitably include many challenges along the way.
But the transition is possible when you make sure to apply the following easy steps:
Of course we would put this one first on the list, but the power of business management software to track your business processes can’t be understated when it comes to smoothly and effectively growing your business without compromising service or product quality or profitability.
Business management software, also known as an ERP system, integrates all business management functions into one convenient platform that gives you ultimate flexibility and more control. ERP software includes essential functions like financial planning, inventory/materials management, payroll, order processing, invoicing, human resources, and so much more.
One of the biggest benefits of an ERP system is the ability to see what is going on with your business during the transitioning process in real time. Since transitioning often involves a higher volume of business processes, an ERP can be very handy, as it provides solid operational backbone for your company.
To list just a few of the benefits of using an ERP:
When it comes to inventory management, many growing companies find themselves unable to determine the right stock level. Since the demand is higher now, it can be difficult to decide how much extra stock you need. While too much stock can lead to bigger expenses, too little stock may greatly impact customer satisfaction and cash flow.
Devised by Ford W. Harrison and applied by R. H. Wilson, the Wilson EOQ formula can help you effectively determine the optimal order size for a given unit of inventory. This formula represents the number of units that your company should add to inventory with each order to minimise the total costs of inventory (order costs, shortage costs, etc). Usually, the EOQ formula is part of a continuous review system that includes consistent monitoring of the inventory level. When inventory level reaches a specific reorder point, fixed quantity is ordered.
In essence, EOQ allows for accurate calculation of the appropriate reorder point and the optimal reorder quantity in order to ensure replenishment of inventory with no shortages. Variables in this formula are:
C = Carrying cost per unit per year
F = Fixed cost per order
D = Demand in units per year
As your business is growing from small to large, you need to take into account a number of financial implications and higher costs for staff, production and facilities. To overcome these issues, growing companies need to collect all outstanding debts quickly, negotiate to decrease supplier costs since you will be buying larger quantities and reduce costs by eliminating unnecessary inventory overhead.
Also, make sure to keep an eye on key performance indicators such as the costs of acquiring a customer as well as the lifetime value of a customer. When you transition from a small to a mid-sized or even large company, you quickly add customers, so if you’re spending a lot to acquire a customer while operating at a loss, you’re in trouble.
It’s not uncommon to see small businesses outgrowing their existing space. If your company is growing very fast, consider a short-term lease, or an executive suite, which may cost more per square foot, but may also offer flexibility for upsizing and downsizing. Both options will help you determine just how much space your business really needs after you go through the growing period.
If your business is growing and you’re finding it increasingly difficult to keep track of all elements of the business and how they interconnect we can help you. Contact us today for a consultation to find out if MYOB EXO has the power to help you manage your business growth without compromising your service or profitability.
Managing cash flow and adequate financial planning are important in any business, and every business has seasonal peaks and low periods. Seasonal businesses that do most of their business during one season and may even close at another time of year need to take extra care when creating a reliable financial plan to help carry them through the low season. Christmas is a slow period for many businesses (aside from retail of course!) as companies close for the holidays and customers take to their homes to spend time with family – so what better time of your to look at some useful cash flow tips?
There are various ways to create a financial plan, and depending on your business, whether your business operates for 12 months every year or it is closed for part of the year, your financial plan should be customised to your business. Consider the following tips when creating your business’ financial plan.
Running a seasonal business means that you already know that some of the time, you will have more money coming in, while other times there will be less coming in. Budget yourself, and always plan for the future by looking at either your own financial history, or research from other companies. Understand your fixed and variable costs, and know when you can cut back on variable costs. Make a potential forecast, budget your spending accordingly, and save enough to cover your expenses at the low points.
If you know that you have a low season, you will have both less work to do, and less money coming in. Instead of taking a vacation or twiddling your thumbs waiting for business to pick up, take the time to strengthen your business. Work on your marketing plan, build a financial plan, try new products or services that might help your business bring money in during the low season, or take classes to increase your know-how.
No matter how much planning you do, there is always the chance that you may need to take out a loan. Make sure that you pay your bills on time, keep open lines of credit, and do not build up a large amount of debt, especially during your high season.
If you are trying to save money on purchases, find one company with whom you work well. Pay your bills on time, and ask about discounts for buying in bulk. You can also negotiate the terms of your payments with suppliers. Rather than paying a lump sum, try arranging a payment plan with a supplier.
Make sure that your invoicing process includes a partial payment up front, or that you don’t send out products until you have received payments. Minimise the risk of giving out free products or services to your business by planning ahead.
Similar to building relationships with suppliers, if you have loyal customers, offer rewards for things like paying bills on time or early, loyal purchases, or buying in bulk. Maintaining your customers is just as important to your business finances as is saving money on your expenses.
If financial planning is not your strong point, it is important to hire someone who excels at it, outsource your financial planning, or find a DIY financial planning software that can simplify the process for you. Software like the Exo Finance – Core Module allows you to run your business’ finances, accounting, stocks, analytics and performance, and more, even remotely.
If it comes down to it, and a loan seems like the best option to cover low periods of cash flow, discuss your options with a financial planner, and know what your loan is for. Make sure your loan fits your financial plan, you will be able to pay it off in the high season, and that you stick to a budget or use financial software to help you control spending, collect balances due, and maintain relationships with both clients and suppliers.
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