Lowering Operating Costs

by Dani Kaplan
April 2006
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Operating costs can be substantially reduced by upgrading aging computer system. Yet many companies are reluctant to upgrade their computer system, remembering their past experiences and not wanting to incur new expenses. What they fail to realize is that having aging software can result in higher operating costs company-wide and lead to excess inventory in the warehouse.

An aging system creates the ?domino effect? of business disruption resulting in higher operating costs. The losses start in the warehouse by having to use additional personnel and ends in shipping the wrong products to customers. This results in high overhead, large numbers of returns, ?charge backs? by the chain stores, and excess inventory in the warehouse. Despite these kinds of business disruptions, many companies choose not to face reality and say, ?it?s the cost of doing business.?

Automating the warehouse

One of the areas most affected by the aging computer system is warehouse operation. Not having an automated warehouse can result in unnecessary personnel, errors when inventory is received, incorrect shipments and high rates of returns. Another side-effect is misplaced inventory that will not be found until the next physical inventory, resulting in excess inventory that might be obsolete when located and cannot be sold.

The benefits of automating warehouse:

  1. Scanned, newly received inventory updates the computer in real-time mode, resulting in the information being available to all users company-wide.
  2. When consolidating shelves to make room for the newly arrived inventory, the computer instantly gets updated, reflecting the new inventory location status. This will prevent inventory from being misplaced and not found until the next physical inventory.
  3. Checking location periodically in a ?cycle count? results in misplaced inventory being found and prevents its ?collecting dust? until the next physical inventory.
  4. Picked inventory is being scanned for accuracy. At shipping time it gets scanned again and verified before shipment, confirming that the correct products and quantities are being shipped.

Information available over the internet:

Many companies view the internet only as a vehicle for getting new orders and feel their customers would prefer to call to place the order, rather than placing orders on the internet. The reality is that the internet has a larger function than just ?placing new orders.? By enabling customers and sales personnel to access inventory data over the internet, greater savings can be achieved and customer service will be improved.

Benefits achieved by having information available on the internet

  1. New orders can be placed by customers while viewing past buying trends, inventory status, and open Accounts Receivable status.
  2. Orders can be modified by the customer in real-time mode and the courier?s website can be accessed with the order information.
  3. Inventory availability and items? images can be viewed, making it a ?real-time? catalog.
  4. Sales personnel can place orders, view their customers? buying trends, and access information related to them, eliminating the need to overnight reports.

Accessing the internet by customers and sales personnel will lower the numbers of calls the Customer Service Department gets when the internet applications are not available. Despite the fact that some customers will still choose to call rather then access the internet, other customers and sales force personal will visit the website, place orders, revise the orders, and get other important information in a real-time mode.

Case Study

A very large chain store in the food industry supplied its franchisees with PCs at a very low cost, encouraging them to place their orders over the internet by giving them special incentives. Besides decreasing the phone calls to Customer Service, they acquired additional benefits. The franchisees, while placing the orders over the internet, were purchasing additional products they would have bought from the competition. Being a ?one-stop shopping? website enabled the franchisees to get better prices and utilize their time better.

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Since 1980, Dan Kaplan has worked with corporate executives to improve purchasing, increase warehouse and distribution efficiencies, and implement software solutions?that result in substantial savings and productivity improvements. To lower your operating costs, reduce your warehousing and distribution business’s quote generation process from 3 weeks to 3 hours and invoice cycle from months to one day, go to smcdata.com