Reason #1 – Inventory Management
If you have inventory to manage, you know that it can be challenging to have the right items in stock at the right time at an appropriate level to support your customer’s needs. This can lead to a reliance on systems like QuickBooks, or an alternative to QuickBooks, to maintain proper inventory levels.
For most companies, investment in inventory is one of the largest assets on the balance sheet. Is this asset working for you or against you? "The No. 1 reason people fail is, they run out of money," said David Goldin, CEO and president of AmeriMerchant, a provider of merchant cash advances. For this reason alone, proper inventory planning and management is a critical company function. When you consider the impact inventory has on your ability to meet your customer’s needs, it becomes even more apparent how important inventory management is to your business success.
QuickBooks allows you to set up a static reorder point that signals you to buy more stock when levels fall below the fixed reorder point. This process works if your demand is consistent, but rarely does a company experience consistent demand. Requirements for a new product ramp up steeply and then trail off as new entrants to the market impact demand. Product demand can spike based on your promotional activities or as you enter new markets or geographies.
Many companies think that they will periodically review their reorder points and preferred stock levels and re-evaluate them based on current demand. Unfortunately what commonly occurs is that this periodic task gets performed less and less frequently over time and, in many cases, is abandoned altogether. The result is that you are triggered to buy more material as demand is falling and what used to represent two weeks of demand now represents two months or two quarters. There is a much better use of cash than for slow-moving inventory!
The solution is to implement an alternative to QuickBooks, that has a more sophisticated and automated approach to inventory management. The key to effective inventory management is to dynamically, NOT statically, adjust your reorder points and stock levels as a function of your demand.
Dynamic reorder points consider the impact of lead-time to procure more stock. The “days of demand” is automatically recalculated and reorder points move up or down with changes in demand. When using this approach, inventory is more likely to be available when your customers require it and mitigate risk of slow moving and obsolete inventory. Keeping cash rather than pouring it into slow moving inventory is critical to company success.
Implementing a forecasting tool provides an even greater level of control over inventory investment. Many forecasting tools can factor in seasonality and growth rates that may apply to your business. Forecasting allows you to incorporate forward-looking information rather than depending entirely on past demand. For instance, you can use the demand pattern of an older product to project the future demand of a replacement product. Or you can anticipate a spike in demand based on the timing of a marketing campaign or the entry to a new market.
In summary, both dynamic reorder points and forecasting tools provide a superior approach to inventory management. In addition to these powerful tools, modern ERP systems offer features that improve the efficiency of your supply chain like distribution requirements planning. They also include cycle counting tools to ensure you are accurately maintaining and controlling your inventory investment. Modern ERP systems offer dynamic reorder point planning and forecasting tools.
If your company uses inventory you should strongly consider an upgrade to an ERP system. Modern ERP systems are rapidly deployed with implementations measured in weeks, not years. In fact, most implementations take less than 100 days. When you add the cost saving benefits of using an alternative to QuickBooks through cloud ERP to the savings from reduced inventory obsolescence, the return on your investment is truly compelling.
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