You might be surprised to learn that Wham-O, the company that gave America the Hula Hoop in 1958—selling over 100,000,000 of this smash hit toy in two years—nearly went broke when the craze died down. Their problem? Inventory… Anticipating more huge sales numbers, the company bought millions of feet of plastic tubing, just in time for the fad to fade to nothing. This wad before the invention of Enterprise Resource Management (ERP) software. Such tools might have helped them avoid the error that almost put them out of business.
Inventory Management is Cash Management
Distributors need to manage inventory well or risk going under. This is because inventory management is essentially the same as cash management. If you’re in the distribution business, you should know this well: The longer you hold onto inventory, the more cash you are tying up. Ideally, you can sell merchandise before you have to pay for it. This is a positive cash cycle. Alternatively, if you’re borrowing money to pay for inventory that’s sitting in warehouses, you’re getting into risky territory. In any event, even if you are doing well with the inventory cash cycle, you could always do better.
Inventory Management is Customer Management
When it comes to inventory, the distribution business presents an endless series of “rock and hard place” moments. You don’t want to run out of items that customers want. If you get into “stock outs” on too many products, your customers will start looking for new distributors. Account relations are potentially at risk if you can’t predict how much stock to hold in inventory.
How Software Helps Distributions Companies Gain Control Over Inventory
Software can be a powerful tool for distributors who want to get better at inventory management. This is partly a matter of the software’s features. But it’s also about how you put the software to work. Modern ERP solutions like Acumatica, which come with the option to add distribution and inventory management modules, provide specialized features such as:
- Expiration Dates—Acumatica lets you deduct expired items from your list of available inventory. This is accomplished through the assignment of an expiration date for individual lots. The software can automatically issue items with the earliest expiration date. This minimizes losses.
- Transaction Reason Codes—By assigning a reason code to a transaction, such as a mark down in price, you gain the ability to measure trends and spot problems. The codes can link to the general ledger (GL) for inclusion in financial reporting.
- Two-Step Transfers—Specialized distribution management software like Acumatica allows for inventory transfers to be performed in two steps. As a result, it is possible to track goods in transit between locations. The GL shows such transfers as “in transit.”
- Inventory Bin/Location Control—Warehouse operations are a cost center for a distribution business. The more efficient you are at receiving and shelving shipments and fulfilling orders, the more profitable your distribution business will be. Acumatica supports this efficiency by enabling you to specify the types of items and transactions you allow. You can set priorities for fulfillment based on cost, bin and location.
- Purchase Order Automation—ERP for distribution can automate purchase orders (POs) based on stock levels. This way, you will avoid running out of goods but also keep over-ordering to a minimum. The system can be set to place orders automatically with the lowest-cost, fastest-delivering vendor.
- Sales Order Discounts and Promotions—Software can help you sell off your inventory for the highest possible price. Acumatica enables you to manage complex pricing and discount policies, e.g. volume discounts.
- Inventory Sub-Items—Inventory management functionality in ERP leads to simplified reporting and tracking through the separation of goods into sub-categories, e.g. color, size and so forth.
- Freight Costs—Moving goods around is a big part of your costs as a distributor. ERP for distributors has features for automated or manual allocation of freight costs to sales orders, invoices or shipments.
Data analytics and reporting work across all of these features. At every juncture in inventory management, it essential to know what’s what—and what might be about to happen. This might involve the use of Key Performance Indicator (KPIs). A KPI is a data point that signals something good or bad happening. For example, if you have a history of running out of an item under specific conditions (e.g. selling out of snow shovels when it’s snowing), a predictive KPI can help you avoid this negative scenario by comparing earlier year’s sales trends with today’s.
We have worked extensively with distribution businesses on the implementation and tuning of ERP solutions with inventory management capabilities. To learn more or see a demo of Acumatica Distribution ERP software, contact us today!