The Cost of Doing Business

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Many companies who have outdated ERP Software are experiencing inventory challenges in their warehouse. This results in incorrect shipments, high levels of returns, charge backs and excess inventory. Despite this, many business owners don’t upgrade their outdated computer systems saying, “it’s the cost of doing business.” What they don’t realize is that in today’s challenging business environment the following changes are taking place: 

  • Manufacturers have their products made overseas where the labor cost is lower than in the USA, bring them back and by-pass Distributors by selling them directly to the Retail Stores. 
  • Distributors import their products from overseas, then they assemble them at their warehouses and by-pass the Manufacturers. 
  • Online Retailers buy directly from overseas Manufacturers, bring the finished products to their distribution centers and by-pass both domestic Manufacturers and Distributors.  

The above factors create a new reality for the business that has outdated software and realize that in order to survive, they must change their outlook that incorrect shipments, charge backs and excess inventory are no longer the Cost of Doing Business and what worked in the past will not work in today’s new business reality.      

The Issues a Large Distributor Faced 

Recently, I was asked by a CPA firm to visit one of their clients who has a twenty-year-old, outdated computer system. When I met the president, he told me that they are experiencing severe business issues of Excess Inventory, Being Paper Bound and keeping track of Landed Cost. Rather than suggesting they should buy the ERP Software from I represent, I told the owner we should discuss his pressing business issues.  

  • Excess inventory: When the year-end inventory count was conducted, misplaced inventory was found. It became excess inventory because new inventory was bought during the year. 
  • Paper bound issues: Fulfilling the daily tasks resulted in extensive manual efforts. The reason for this was that the users had to count on reports that didn’t reflect the current computer information because the computer data had changed since the reports were printed.    
  • Landed cost issues: Tracking the landed cost manually resulted in products being sold at a price that was often lower than the company paid for them.   

Warehouse Logistics Issues

Not having enough warehouse space, new inventory received was stored in trailers located next to the warehouse. In order to resolve this issue, I recommended hiring a Warehouse Logistics Consultant who worked with us to evaluate the warehouse layout, inventory picking and shipping procedures. 

Issues the Warehouse Consultant Discovered 

  • The inventory on the racks was not stored for optimum efficiency creating bottlenecks when products were picked. 
  • Slow moving items were stored on the lower shelves while fast moving items were found on the upper shelves resulting in excessive manual effort. 
  • Incorrect items were picked and shipped. This resulted in high rates of returns, charge backs and excess inventory since new products had been bought.

The consultant recommended lifting the warehouse roof that would enable building higher racks. In addition, he recommended building a second level mezzanine that would create additional space where inventory could be stored.

Moving Forward

The president, who was a forward-thinking person, decided to follow the warehouse consultant’s recommendation to raise the warehouse roof, build the mezzanine and purchase new ERP Software from the company I represent. 

Results Achieved from Having a Modern ERP System

  • Newly received inventory is scanned with a radio frequency gun.  This resulted in the computer records being updated in “real-time mode” and becoming instantly available to everyone company-wide.
  • Inventory picked and shipped is scanned with radio frequency guns resulting in the correct items being automatically picked and shipped.     
  • Location cycle counts were taken weekly finding misplaced inventory eliminating the need for a year-end physical count.   
  • Labor efforts were drastically reduced. 
  • Because the computer records were updated on a daily basis with foreign currency exchange, landed cost was accurate. This resulted in products being sold at the correct price and the company’s bottom line profit improved.
  • Having the integrated website with the ERP Software enabled customers to place their orders and view inventory availability. It resulted in a lower number of calls and faxes enabling the Customer Service department to address pressing issues. 
  • 99% inventory accuracy was achieved in the warehouse and the number of errors of shipped orders was reduced by 99.95% 

 

About SMC & Dani Kaplan:

Since 1980, Dani Kaplan has worked with manufacturers, distributors, food distributors and food processors as the trusted advisor helping them lower their operating costs, stream line their operation and control the inventory.

Dani can be reached via SMC – http://www.smcdata.com/contact