Recently we met a prospect, who is into manufacturing of OEM items. He was looking for an ERP solution on could that helps him to streamline his process. This is a 40+ yrs old company and at one stage enjoyed a profit margin of 25%. A discussion with company’s Director explained the challenges that he is facing.
Today’s Business owners are pressurized from both Customer, who wants to pay less price and office & other expenses that are increasing. In summary, the profit margin is squeezed to a level they can’t manage any more. Earlier profit margins of 20%+ is no more available and they work with 4% to 8% at maximum.
Most of the business people focus more on Sales and marketing as a tool to expand the business and gain a financial control. In a hurry to achieve this, they miss what’s infront of them that’s the first thing to control and that’s easy to begin with.
Yes, Inventory or Stocks – a liquid cash that’s been wasted. Managing the stocks and its cost is very crucial element for the business success.
There are multiple factors that affect the Cost of Finished goods
- Price of Raw materials
- Production costs (Labor, Machine costs)
- Inventory holding cost (few cases this could be added as an Overhead cost too)
What is interesting is “Inventory holding cost”, because many business owners don’t realise this until they have an excess stock or inventory, out of date quality and piled up with items that can’t sold.
At the same time holding too little stock can give your clients motivation to shop somewhere else or situation will cost your business investment.
To effectively maintain stock to build your benefits requires making the adjustment of recognizing what to keep, how much to keep, what’s moving and so forth, Preparing for your future needs and acting admirably upon them.
Here are a few rules that could help you deal with your stock management:
- Analyzing Supply Demand Tendency: Look at all the Sales and Purchase patterns to understand the regular movements of inventory. Products can then be requested or made to meet surges and cutting in inventory request.
- Master techniques to gain better control on your inventory systems: Make a stock or inventory control system and method to enhance and keep up consistency and effectiveness of stocks that will help decrease costs and enhance benefits.
- Strategies to improve business productivity : Distinguish the stock or inventory that moves frequently. Effective stock inventory can show you about what entirely help you take out and what doesn’t for moderate moving or dead stock inventory.
- Use Material Requirement Planning (MRP) software that could help you with managing changes that happen during the production, purchase, etc. However this requires a lot of work to set them right as you need to know the Purchase Lead times, Quality Check Lead times, etc.
A well efficient inventory management system is the only key to balance a business’ profit margins over a period of time.