The Domino Effect Of Business Disruptions
Many people feel that their outdated inventory control systems “have been working fine.” The reality is that often it creates the Domino Effect of business disruptions resulting in lost sales, increased operating costs and excess inventory in the warehouse.
Business Disruptions Resulting from not Having Accurate Information
- When customers call to place orders they often are told: “my computer shows that we have the inventory in the warehouse, but I have to verify it.”
- Next the Customer Service person will search multiple computer screens while the customer is on the phone on hold.
- If additional information is needed the Customer Service person will call the warehouse to verify the computer information is accurate.
- While the above takes place, other customers who called have to wait until someone is available to help them.
- Those who don’t want to wait hang up and place the order with a competitive supplier.
Lost Revenue Resulting from Incorrect or Late Shipments
- Distributors who sell to the chain stores face severe ramifications when products are incorrectly shipped or arrive past the promised delivery date.
- Besides returning the merchandise, the chain stores will penalize the distributor by “charging back”, and the distributor will only receive partial payments.
- Many distributors learned to live with this fact of life saying: “it’s the cost of doing business with the chain stores” who had found a way to increase their bottom-line profit.
- Besides returning the merchandise and the “charge back”, the Chain Store might stop conducting business with the distributor.
The Effect of Returned Inventory
- New inventory will be purchased after the merchandise is shipped.
- Returned inventory often becomes excess inventory.
- The customers who returned inventory will not pay their invoices until credits and adjustments are issued.
- Having to issue credits or adjustments for returned inventory, the Accounting Department often miss the supplier’s early payment discounts.
- The “domino effect” starts when the wrong quantity is received in the warehouse or the shipment was delayed. It results in orders being canceled.
Issues Resulting from Having Unautomated Warehouse
- When new inventory is received at the warehouse, half-empty shelves are being consolidated to make space for new inventory and the computer records are manually updated.
- The computer will not reflect the correct inventory status if the warehouse personnel enter incorrect information or forget to update the computer records.
- Misplaced inventory will not be found until the next physical inventory takes place in the warehouse.
- The misplaced inventory often becomes excess inventory that sometimes cannot be sold.
- The Purchasing Department, not having accurate information of the inventory in the warehouse, often orders additional inventory that might become excess inventory.
Excess Inventory Case Study
Recently, I visited a company that sells expensive knives that they purchase from overseas manufacturers. Having an outdated ERP Software, the computer manager told me that the Purchasing Department, who did not have an accurate account of the inventory status in the warehouse, ordered an excess number of knife holders that would last for a few years.
When I heard this, I suggested they should think about purchasing up-to-date ERP Software that will give the end-user real-time information of the inventory status in the warehouse, the ability to do weekly cycle counts of location, and eliminate the issue of lost or misplaced inventory.
After doing extensive research for new ERP Software they bought ERP software from the company I represent. I kept in touch with the computer manager and we often had lunch. After they went live with the new ERP Software the manager told me, “I am glad we selected the ERP Software from the company you represent. We achieved 99% inventory accuracy in the warehouse and reduced errors on orders shipped by 99.95%”
In today’s competitive business environment where the operating costs are increasing and the profit margins are shrinking, having accurate computer information is a must for achieving the following results:
- The operating cost in the warehouse will be lowered.
- Excess inventory and incorrect shipments resulting in lost sales will be eliminated.
- Having analytic software will provide real-time information of the various activities and can be instantly downloaded to a spreadsheet.
- Compete successfully in today’s challenging business environment and maintain the bottom-line profit.
About SMC & Dani Kaplan:
Since 1980, Dani Kaplan has worked with manufacturers, food distributors, food processors, and the pharma industry as the trusted advisor helping them lower their operating costs streamline their operations and control the inventory.
Dani can be reached at (917) 647-2466 https://smcdata.com/