Free up hundreds of thousands of dollars in cash
If like many mid-sized companies, you have an inventory valued between $1M and $10M, a 10% improvement in purchasing can free up hundreds of thousands of dollars. The good news is that 10% is quite achievable.
Any company with a warehouse knows that when you have more inventory than is selling, your money is tied up and you can’t buy the stuff that will sell—or you must discount the extra inventory to move it out. However, too little stock is a big problem as well when your sales orders cannot be filled.
The pressure that’s always there
Should I buy more of this item? Should I get less? Should I wait?
You want to avoid having goods just sitting there decaying, that you can’t use. At the same time, your vendors have many compelling incentives to buy more now.
It’s easy to get mired in so many variables or be swayed by emotion. Even intelligent, experienced managers find it a challenge to efficiently stay on top of this complexity.
Use automation to purchase exactly the goods needed to fulfill orders
In calculating a conservative, realistic figure for replenishment, software tools can assess these factors for you:
• What you have in stock
• What you currently have on order
• What your sales were in comparable periods, plus a percentage modifier that you specify based on sales projections
• Purchase orders to generate for your review
For example, you might want to automatically have an order triggered for raw goods when a new order is received for an item to be manufactured, with consideration to lead time, quantity discounts and warehouse availability. Now that’s automation!
For more complex businesses, software can also take into account:
• Multiple sources and prices
• Minimum order levels
• Variances in shipping
• Variances by vendor (such as a vendor that takes an extra month to ship)
• Any factor critical to price that’s specific to your business
A manufacturer we work with makes things from aluminum. If the price of aluminum gets hammered down in the markets, it can be a good time to order extra at a discount.
By automating purchasing to include this variable for pricing consideration in the demand forecast calculation, decisions improve. Buy better, buy cheaper, buy leaner.
When you can delegate these calculations to the software, you save time and improve accuracy over paper-based or spreadsheet calculations.
Without giving up the human factor
Your knowledge of the nuances of your business remains key. Demand forecasting tools put a list in front of you based on your rules, giving you all the information you need to make the final purchasing decisions.
This is an ERP capability that’s often undervalued by companies
Of all the functions of ERP and accounting software, purchasing automation tools offer the highest return on investment and great benefit to companies that have over $1M in inventory.
Has it gotten harder to forecast well as you’ve gotten busier? Give us a call to get an idea of what can be done to further optimize your spending on hard goods. A range of solid software options is available from basic to custom-built, with many steps in-between.