The Hidden Costs In The Warehouse

In today’s challenging business environment companies realize that in order to increase their sales and revenue they need to acquire competitors’ companies. It will work well if they have a modern ERP system and convert the acquired company computer data to their computer system. If they don?t, they end up with two computer systems and lose control of inventory in the warehouses. This will result in excess inventory and unnecessary expenses. 

Recently I was asked by a CPA with whom I often worked to visit his client, who was contemplating acquiring his competitor’s company. The CPA, concerned about his client having an outdated computer system, asked the President to meet me feeling I could help his company. When the meeting took place, I told the President that I work on long term relationships as a trusted advisor and suggested we discuss his company’s business needs rather than talking about purchasing new ERP Software. The President, pleased, described the issues his company faced:   

  • Paper bound: Not having current computer information, the users had to go to the computer department to get the information they needed. 
  • Inventory: Not having an automated warehouse resulted in incorrect products being picked and shipped. When new inventory was received the computer records were not always updated. This resulted in misplaced inventory that wasn’t found until the end of the year when the physical inventory was taken. 
  • Accounting department: Clients who received incorrect shipments didn’t pay their bills until credits were issued. It resulted in the accounting department often missing vendors’ early payment discounts.  
  • Customer service: Orders were called in or faxed, creating an additional workload for the customer service department who had to manually update the computer records. 
  • Purchasing department: Since the agents were using reports that didn’t reflect current information of new orders shipped or accurate inventory status in the warehouse, they had to rely on their past experience and input from the sales force about what would sell best in the next season or next year.

Listening to him discuss the above issues, I told the President that he needed to buy a Modern ERP Software that would eliminate most of these issues. The CPA, who agreed with me, reminded the President that acquiring his competitor with his current computer system would result in business disruption and recommended they should start searching for Modern ERP Software. After seeing the demos of a few software houses, the President and the CPA decided to buy the ERP Software from the company we represent.    

The Benefits of The New ERP Software   

  • Lost inventory: Misplaced inventory was found when the weekly cycle count was taken eliminating the need for the end of year physical inventory. 
  • Accurate information: The computer files are updated in real time mode using RF Guns when new inventory is received, picked and shipped. Popular items were placed on lower shelves and the slower moving on upper shelves, reducing labor efforts. 
  • Purchasing department: The agents, having real time information on the Inventory status in the warehouse, open orders and sale history, eliminated the need to rely on the sales force projection about what would sell next season or next year.  

Acquiring a Competitor’s Company: Case Study 

Working on long term relationships, I kept in touch with the President and CPA and often had lunch with the President. Two years after his company went live with the new ERP Software he bought from the company we represent, the President asked me to meet him for lunch saying he needed to discuss a new business venture with me.

At lunch, the President told me that having the Modern ERP Software would enable him to acquire his competitor’s company which had a large client base that bought on the internet, resulting in his company doubling its revenues. When I told the President that we should integrate his competitor’s computer database with his new software, his response was: “It can’t be done. They are insisting on using their computer system.”

When I heard this, I reminded the President that in the past I had helped a client who grew his business from 6 to 35 million dollars in six years by acquiring companies and had done the software integration for the companies he acquired. The success story was published in 3×400 Information Management Magazine (read more).

The President, upset, said that it would be a deal breaker if his competitor couldn?t use his aging ERP Software. I then informed him that having two computer systems would result in the following issues:

  • His computer would not have the competitor’s inventory information in the warehouse. 
  • This can result in one warehouse having excess inventory and the other being short of inventory. Not being able to transfer the inventory from one warehouse to the other or ship customer orders from the warehouse with excess inventory would result in unnecessary new inventory being purchased.
  • The President’s company would lose its purchasing discount power because each purchasing department would buy their own inventory.
  • The accounting firm would have to conduct two yearly audits.  

When I realized that the President was stressed, I suggested he should discuss it with his CPA. The next day the President called me and said, “My accountant agreed with you and recommended I should not buy my competitor’s company.”

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  https://smcdata.com/contact