Increasing profitability is a problem that can be solved by two methods: increasing sales or reducing spending. 2019 did not announce a very promising year of growth, so we suggest that you focus on spending. Clearly, we do not think about reducing wages or gasoline rates (employee satisfaction is a crucial objective), but we have some ideas about stocks. For companies with production, assembly and distribution activities, stocks are the main spending chapter. Therefore, we focus on their intelligent management, thus achieving a considerable decrease in associated costs.
Let’s find out together how smart the approach is and what the results can be:
Proposal 1. Include stocks in the calculation of profit
Stocks are both cost and revenue generators. When setting profitability targets, they can significantly influence financial results. In addition to purchase costs, stocks also generate other costs: storage, damage / expiration, indirect costs of blocking or restraining other resources, etc.
It also takes into account both revenue from the sale of stocks and, for example, income from supplier discounts. An intelligent acquisition process, based on choosing the most profitable suppliers and reaching volumes to obtain discounts as well as tracking the target achievement, can bring additional or comparable revenue to sales margins.
Proposal 2. Estimates market demand correctly at the time of supply
The market is fluctuating for the most diverse and often unpredictable reasons: the evolution of the economy, national and international political events, trends, etc. Depending on the position on the supply chain, demand fluctuation may experience a different amplification. For example, if the end-user demand grows at some point with X%, vendors, following the trend, will forecast higher growth in the next month, based on the previous result. Suppliers will also estimate the same optimistic trend, and distortions will increase on the supply chain. For example, SAP Business One allows you to test multiple estimation scenarios using optimistic / pessimistic / average premises. Using this estimation tool, Material Requirements Planning, which can be parameterized correctly and taking account of historical data, can greatly reduce these distortions, eliminating unnecessary purchases.
Proposal 3. Build your purchases on the information provided by ERP
Not just market information is relevant. Equally important is the historical data you can get from the ERP system: the speed of inventory rotation over one or more prior periods; Minimum required inventory Delivery time of the supplier; seasonality; Preferred suppliers; Stocks in other units, Commandments in production, etc. In the absence of an ERP system, such information is difficult to obtain. But we can help you, we are an official SAP Business One partner, the SAP solution dedicated to medium-sized companies.
Proposal 4. Implement a standardized procurement process.
The experience of the past 10 years has shown us that in companies with a large number of clients or a large product portfolio, the acquisition process can generate little chaos. In the absence of well-defined procedures, information is lost when orders are placed, the best offers and terms of trade are not taken into account; undelivered orders from lack of stocks, as well as actual delivery times are ignored. Finally, purchasing department employees spend a lot of time defining supply requirements and the suppliers from which it is most profitable to buy without having a full view of the process. If there are changes in market conditions or some of the employees leave, the situation becomes a barrel of powder.
With SAP Business One, you can implement a standardized, customized acquisition process that can be effortlessly repeated. Such a flow will provide transparency and flexibility to purchases and will bring significant time and efficiency gains at the operational level. To configure this process, integrate the best practices in your field of activity and our experience on the Romanian market.
Transforms cost-to-profit stocks with SAP Business One and System Innovation. Contact us to implement a standardized acquisition process and intelligent inventory management. We have both the technology and the necessary business knowledge.