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Distribution ERP Systems: How to Optimize Inventory Management

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Reggie Fernandes June 11th, 2020

As you prepare to reopen your business after the lockdown, you must be inundated with questions. Will we get back to business as usual? What do we need to do differently? How has my customer behavior changed? Of the many questions and concerns, one thing is certain – the way you manage your inventory and supply chain has changed forever.

This is a good time to re-evaluate your approach to inventory and supply chain. You can implement constructive measures now to optimize inventory and protect your business from future market disruptions. The better you can track and measure your inventory during these unique times, the more strategic you can be about your entire supply chain.

Whether you are focused on increasing sales or simply staggering items to keep business running continuously, here are some strategies to help you optimize inventory for success.

1. Create your inventory contingency plan

If you do not already have a contingency plan in place, this is the first step to ensure you have a consistent supply of goods to your customers and dealers. Ask yourself these “what if” questions. It will get you thinking on the measures you need to put in place to optimize the flow of products to your customers.

  • What are our options if our main supplier defaults on delivery?

  • Are there better and easier ways to get products to our customers?

  • How will we fulfill orders if there is a shortage or stockout?

  • How can we reduce dependence on specific vendors, products or staff to minimize risk?

  • How could we improve if we automated warehouse operations?

  • What steps do we need to take to improve inventory turns?

Besides inventory, your contingency plan should include all areas of the supply chain. This could include your workforce, suppliers and alternative suppliers, logistics, transportation providers, etc. This crisis has highlighted the importance of contingency planning as an ongoing element of every business. Make it an integral part of your management strategy and planning, not only for your supply chain needs but for your entire organization. A good contingency plan can prevent your business from going under when unexpected events occur. Remember, "you cannot change the direction of the wind, but you can always adjust the sail to reach your destination". Make contingency planning your sail and enjoy the journey.

2. Identify the weak links in your supply chain

A chain is only as strong as its weakest link. The same applies to your supply chain and business. It is good to focus on your strengths; however, it is about time to give equal importance to your weakest link to protect you from future crisis, disasters and failures. Your weak links have likely been easy to identify amid the crisis. Now is the time to critically evaluate those areas and put corrective measures in place. It could be your workforce, your business processes, your supply chain processes or the way you do business. So how can you go about finding the weakest link in your supply chain?

  • Talk with your suppliers. Communicate any weaknesses that you have identified and make sure that your vendors and suppliers understand the risks, so they can implement strategies to reduce them.

  • Devise supply chain and vendor metrics, ensuring they are accurate and functionally aligned. This will lead you to greater success.

  • Keep up with supply chain technology and trends. ERP software has allowed companies to optimize the supply chain, specifically with distribution and production planning, inventory management, warehousing and transportation systems. Take time to understand and deploy these tools, including advanced barcodes and scanning. This will help your company avoid bottlenecks and reduce backorders.

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3. Focus on improving your customer experience

Moving forward, operating with a customer-centric view will be required, rather than optional. You need to focus on how you can promptly get your products to your customers. Customer loyalty during this time can be very fluid and you could lose a customer to a competitor if you are not able to deliver.

Revisit your delivery and transportation plans. The traditional approach may not work in the current circumstances. You may need to adjust or change your plans entirely. You might need to deliver your products directly to the consumer on behalf of your dealers or retailers. You might also consider direct deliveries to the stores versus distribution centers. This is a great time to innovate with your dealers and retailers to ensure that your customers are taken care of.

Another approach could be to accelerate online eCommerce. We have seen many traders and distributors moving online to reach their target audiences. Making your fast-moving products available online is a quick and easy way to continue serving your customers. Combined with a strong delivery and dispatch plan, you can set yourself up for long-term success. This could be a turning point where you fully embrace eCommerce as an additional sales channel as business returns to normal.

Setting up an eCommerce site for your business is not an uphill task, any modern ERP solution should provide you with easy to deploy customer portal to get you up and running in a couple of weeks.

4. Optimize your safety stock

With businesses reopening, demand for your products could be erratic and uncertain, with huge spikes and slopes. To have a consistent flow of products to serve your customers, optimizing inventory is critical. To do so, I recommend classifying your inventory into different categories: A-B-C categories, fast-moving and slow-moving items. A good ERP software should help you do this in matter of minutes.

Once you have classified your products, focus on improving inventory turns on your fast-moving/high demand items. This will further fuel your cash flow and increase your working capital. Look at your safety stock levels and see how you can increase it for items with high demand.

For slow-moving items, work out a strategy to reduce them. Flag these items in your ERP system to make sure that no further purchase orders are placed without prior approval and discussions. Also, temporarily halt any system generated algorithms such as automatic replenishment that may not be as effective during periods with unpredictable demand.

5. Prepare your team for the next normal

COVID-19 has changed the way we do business forever. As businesses reopen, you need to pivot your business as a whole, including service levels and processes. The demands and expectations of your stakeholders are in for a revamp. With this major shift, it is important to have a real look at your team and prepare them for the new way of doing business.

Make sure your account managers are in regular contact with your customers. The focus will be on customer success and satisfaction. Given that customers now expect instant engagement and updates on all the aspects of your products and services, think about how your team will achieve this objective. How you engage and update your customers will determine your success. Fortunately, through the deployment of technology, you could instantly send them alerts and messages at every stage of their supply chain process.

Finally, review your inventory and supply chain situation on a daily and weekly basis for essential products. Adjust delivery and available-to-promise dates promptly based on your review. Communicate these changes to your customers using a customer portal or other means of communication. Keeping your customers informed in real-time will give you a competitive edge and enhance your brand reputation.

As you look forward to the reopening of business, I do hope you will consider these strategies to optimize inventory in the short-term and minimize long-term risk. I look forward to hearing from you on your journey to success. If I could be of any help, please feel free to contact me.

June 11th 2020
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