Manufacturing, distribution and retail businesses know that their inventory is a key asset on their books. Figuring out how to make that inventory as profitable as possible is key to growing the business. But so many of these businesses rely on outdated tools to manage their inventory, and that’s hurting their profits on nearly every single sale.
So what’s the problem, exactly? Usually, it’s an inventory spreadsheet that was designed to help inform replenishment — when to order, how much to order, which items to order, etc. But the simple fact is that math that goes into calculating safety stock and reorder points is much more complicated than a spreadsheet can handle. Using a spreadsheet to manage your inventory is like using the back of an envelope to do your taxes: it’sg just not going to work.
The keys to understanding how poorly this process works can be found in two outcomes: excess stock and stock-outs.
Stock-outs are a death knell to your business. These are orders from customers you can’t fill because you just didn’t have the stock on hand. You can expedite an order, which is expensive, to keep the customer happy, but that’s not a sustainable solution. You risk losing the sale and you even risk losing the customer. This is a terrible scenario for the long-term health of your business.
Excess stock is what most businesses accumulate to make sure they don’t run out of stock. Having extra inventory around means you’re ready for orders, including some unexpected orders. But how much is really piling up? What about insurance, storage, spillage, and obsolescence? A little bit of extra stock — what’s known as safety or buffer stock — is key. But how much is too much? Which items need how much? If your main motivation is to defeat stock-outs, you’re almost certainly carrying too much. If your safety stock levels are calculated on a spreadsheet, you’re basically making daily guesses for replenishment. The costs of excess stock are staggering.
There are tools that can help you figure out how to free up that cash that is stuck in extra stock in your warehouse. Here’s a success story from the inventory experts at NETSTOCK, who built a demand planning app for Sage 100 and NetSuite ERPs, where they helped one successful business transform their cash flow by eliminating useless excess.
The result? An extra million dollars in working capital to reinvest in their business. Watch this three-minute video and ask yourself how much cash you have tied up in your warehouse. What could your business do with that capital instead of watching it gather dust on your shelves?
Interested in taking a deeper look at Sage Inventory Advisor? Contact your Account Manager to schedule a personalized demo. Also, check out our webinar–”How to Automate and Optimize Inventory“.