How to turn stocks costs into profit

How to turn stocks costs into profit

4 achievable proposals in any production and distribution company

Increasing profitability is a problem that can be solved by two methods: increasing sales or reducing spendings. 2019 does not announce a very promising year of growth, so we suggest that you focus on spendings. Clearly, we do not think to cut wages or gasoline rates (employee satisfaction is a crucial objective) but we have some ideas about stocks. For companies with production, assembly and distribution activities, stocks are the main spending chapter. Therefore, we focus on their intelligent management, thus achieving considerable cost savings.

Let's find out how smart the approach is and what the results can be:

Proposal 1. Includes stocks in the calculation of profit

Stocks generate both spending and revenue. When setting profitability targets, they can significantly impact financial results. Besides purchasing costs, stocks also generate other costs: storage, deterioration / expiration, indirect costs of blocking or restraining other resources, etc. It also takes into account both incomes from the sale of stocks as well as, for example, income from discounts from suppliers. An intelligent acquisition process, based on choosing the most cost-effective suppliers and reaching volumes to get discounts, as well as tracking your target's achievement, can bring additional or comparable revenue over sales margins.

Proposal 2. Estimates market demand correctly at the time of supply

The market is fluctuating for the most diverse and often unpredictable reasons: economic evolution, national and international political events, trends, etc. depending on the position on the supply chain, demand fluctuation may experience a different amplification.

For example, if the end-user demand grows at some point with X%, vendors, following the trend, will estimate a higher increase in the next month, taking as a basis the previous result.

Suppliers will also estimate the same optimistic trend and the supply chain distortions will increase. For example, SAP Business One allows you to test multiple estimation scenarios using optimistic / pessimistic / average premises. Using this estimation tool, Material Requirements Planning, which can be properly parameterized and takes into account historical data, can greatly reduce these distortions, eliminating unnecessary purchases.

Proposal 3. Build your purchases on the information delivered by ERP

Not just market information is relevant. Equally important is the historical data that you can get from the ERP system: the speed of inventory rotation over one or more prior periods; Minimum required inventory; Delivery time of the supplier; seasonality; Preferred suppliers; Stocks in other units, Commandments in production, etc. In the absence of an ERP system, such information is difficult to obtain.

Proposal 4. Implement a standardized acquisition process.

The experience of the past 10 years has shown us that in companies with a large number of clients or a large product portfolio, the acquisition process can generate a little chaos. In the absence of well-defined procedures, information is lost when orders are placed, the best offers and trading conditions are not taken into account; undelivered orders from lack of stocks, as well as actual delivery times are ignored. Finally, the purchasing department employees spend a lot of time defining supply requirements and the suppliers from which it is most profitable to buy without having a full view of the process. If there are changes in market conditions or some of the employees leave, the situation becomes a barrel of powder.

With SAP Business One, you can implement a standardized acquisition process tailored to the company's needs, a process that can be repeated effortlessly. Such flow will provide transparency and flexibility and acquisitions will bring a significant gain in time and efficiency at the operational level. To configure this process, integrate the best practices in your field of activity, as well as our working experience on the Romanian market.