Lately I have been working with a number of companies that, in the current climate, have been looking to improve cash flow and improve profits. Times are tough!
Now clearly there are hundreds of improvements organisations across Australia can make to help increase their profits and reduce their need for high working capital.
Inventory, however, is a classic easy win, so blow the dust off your slow moving inventory and turn it into cash.
An example: Process Improvements in Wholesale & Distribution
The example I will use is a wholesale and distribution organisation with a presence across Australia. After two days working with the team, I made 33 recommendations for process improvements that will lead to tangible savings.
No surprises that one of the 33 improvements in this organisation is a reduction in inventory. Current inventory holdings were valued at $29 million. We calculated that we could reduce their inventory holding comfortably by 26% and freeing up $7.5 million to cash flow.
Given this organisation is using borrowings to fund its operations returning $7.5 million back into cash flow is a useful, cost effective thing to do.
Now clearly this also adds back to the profit and loss statement. The interest on $7.5 million is significant and in addition to other costs related to inventory such as storage, handling, obsolescence, insurance, taxes, shrinkage. These are expenditures that all need to be factored in and – depending on who you believe – could cost the business 14 to 19%.
Reduce the inventory but keep the customer satisfied
Reducing inventory levels while maintaining customer satisfaction did, of course, require some substantial improvements to the company’s current systems. Following a thorough requirements gathering process, we introduced Greentree ERP Software into the business. The right ERP solution yielded some clear benefits and quick wins.
1. Clear understanding of inventory levels across multiple stock locations and warehouses
The ability to have a clear visual on the inventory numbers and its status is critical to any efficient organisation.
Understanding what stock is due for shipping today, returns, critically low product lines are all essential basics we need to know.
Real-time notifications of inventory issues and current balances are a must. Inventory is a fluid thing, therefore, historic figures from last week or month are useless in meeting your current demand.
By reducing manual processes, such as orders and manually checking inventory, the reduction in time for reordering inventory manually is reduced dramatically again impacting on P&L.
A simple automated process like below was adopted.
2. Know your product range
Understanding the levels of inventory are one thing but having clear visibility of each product line you sell is also critical. For example, your ERP can ensure you can visualise:
- Fast and slow moving products
- Products you need to promote
- Which products are imported and take time to stock
- Whether you need to manufacture kits
- Product sales trends and issues
- Recurring fault or manufacturing issues.
- Issues such as poor packing, damaged product or courier damage
These are all vital components of delivering customer satisfaction.
3. Find your way around your warehouses
Locate your inventory quickly and you can fulfil your customers’ orders immediately.
Maximising accurate and on-time deliveries while maintaining inventory on hand at optimum levels can be a challenge to even the most efficient organisations. Inventory outages as well as picking and dispatch errors result in customer complaints, unnecessary sales credits, extra shipping costs or lost sales, all costing your staff time and your business money.
The Mobile Warehousing Operations within Greentree software greatly reduces manpower required to do picking and productivity and accuracy is increased tenfold.
Again, the ability to do inventory transfers within the organisation to use inventory that may be spare helps minimise inventory costs.
4. Customer demand
Forecasting accurately means less need to keep excess inventory.
Effective forecasting is dependent upon having the best available information available, including sales, purchase commitments and expected deliveries. Maintaining optimal inventory levels throughout ensures an accurate information flow from one distribution or manufacturing process to the next.
Managers then have the information they need at their fingertips to accurately plan the materials and resources required to meet the most rigorous customer demands at the most competitive and profitable price.
Understanding key customers’ demand is also essential and being able to offer acceptable substitutes if required. Having your teams prompted during order processing to prompt alternatives to out of stock. The ability to offer different sized packed goods or slightly better/inferior brands.
Again seasonal patterns may also prove to be a factor in terms of short-term demand.
Keep your money in the bank
Stop your dust gathering today and keep your money in the bank. Speak to us to find out how Greentree ERP software can help you better manage inventory and cash flow to add profit to your bottom line.
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Scott Graham is one of the Directors of Kinetic Information Systems. He started his career in the UK as an accountant in practice and then industry. Scott has been in the software industry for over 18 years in the UK and over the past six years down under. You can connect with Scott via his LinkedIn profile linkedin.com/in/scottgrahamkinetic