ERP Delivers Incremental Improvements to Optimize Distribution

Without the right system for managing your distribution, you don’t know what’s on hand, how big your backlogs might be, or even if you can fulfill orders.

This post delves into the benefits a modern ERP system delivers around inventory insights and shows how small changes add up quickly when you improve your systems.

Why you need to know what’s in the warehouse

Businesses that use their ERP system for distribution management are usually operating in lean inventory environments, so the smaller the amount of cash tied up in inventory, the better off they are. But while having free cash and operational flexibility provides a competitive advantage over slower competitors, it’s ineffective if you don’t have enough inventory available – or incoming – to fulfill orders and maintain customer loyalty.

ERP easily provides knowledge of on-hand inventory and backlog levels

An ERP solution provides visibility across the supply chain. As you take orders, you can query your ERP system to determine if you have enough inventory to fulfill specific orders. The ERP also shows the backlog levels for components and sub-components of a final product and calculates the backlog for the final product.

If an order is critical to the business and your inventory isn’t sufficient, you can prioritize specific inventory purchases (or manufacturing runs) through the ERP system to fill the order. If an item requires outsourcing, your planners can simply click a few options in the ERP’s user interface and convert a production order to a purchase order. If the components and sub-components necessary to fulfill the order are also stuck in backlog, the ERP system can track acceptable substitutes and calculate the optimal set of items to make/buy to fulfill the order.

ERP minimizes inventory emergencies

The on-hand inventory and backlog scenario described above would be a rare occurrence when using modern ERP to manage inventory because your organization can establish pre-defined minimum inventory levels. Should your inventory fall near an established minimum threshold, the ERP system will automatically reorder the necessary items to make/buy the final product. Moreover, ERP’s ability to predict incoming orders is significantly better than an organization’s manual calculations. The ERP system can review trend data across multiple user-defined dimensions and provide predictions for incoming orders. You can also run an unlimited number of scenarios in ERP to see how incoming orders will vary based on various micro and macro business factors and customer-specific needs.

Finally, do you actually want to fulfill that new order? Your ERP system can delve into the various costs associated with making/buying a final product and how those will change based on order quantities, current supplier discounted term offers, and more. This is the result of ERP’s all-in-one system capabilities for finance, accounting, CRM, distribution, manufacturing, etc. After running the numbers in ERP, you’ll know if the new order is worth taking or whether it provides too little payback when weighed against the other opportunities your business could pursue instead.

Conclusion

Margins for most businesses are under pressure, and one of the best ways to fight off margin pressure is to gain insights into your company’s distribution position and capabilities; maintaining inventory levels based on robust predictions is also paramount. Modern ERP can deliver these capabilities.

To learn more, contact LBSI today, and we can show you how small and medium-sized businesses are optimizing their cash flow and business advantage with ERP.