How can you maximise profitability from your inventory?
Distributors often simultaneously suffer from conflicting complaints concerning their inventory. They have too much of the wrong products, and not enough of the products necessary to provide a high level of prompt customer service
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.
Leftover special order items
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.
Ignored customer-specific inventory
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.
Leftover quantities of obsolete products
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.
Over-emphasis on gross margin
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.
Contact Horizon today for more information or to arrange a demonstration of MYOB EXO or MYOB Advanced ERP.
Article reproduced via MYOB Australia.