Whether you’re a manufacturer or distributor, inventory is the currency of doing business. Inventory is closely linked to cash flow. Simply put, the less inventory you have sitting in the warehouse the more cash you can have sitting in the bank. This must be balanced with the difficult-to-measure metric of how many sales could be lost because of insufficient inventory.
You don’t want to have old, out-of-date inventory or too much inventory, and you need to be able to replenish the inventory in a timely and efficient manner. You need to be able to understand and manage the costs of your inventory. Controlling the costs at source can improve your margins without needing to raise sales prices and becoming uncompetitive in the marketplace. To achieve this goal, you need the visibility, flexibility and control delivered through a fully integrated ERP (Enterprise Resource Planning) system, that can manage the inventory from procurement through manufacturing to delivery to the customer, giving visibility of quantity and cost at all stages.
The right product
The first step in inventory management is making sure that you have the right product in the right quantities. This may not be as simple as it sounds. Different manufactured products may have similar but different components, you may have controlled versions of various manufactured products, and products may be managed and/or stocked in a variety of units of measure.
The starting point for getting the product right is Sage X3’s Product Record, providing full details of each unique product, and the variety of units of measure that it can be transacted in. Within Sage X3 you can manage separate units for stock, sales and purchasing, along with a variety of packing units; all with conversion factors, with 6 decimal places of conversion possible per unit. This will ensure that you communicate with both your suppliers and customers in a unit of measure that is correct and convenient to them, thus avoiding mistakes and incorrect deliveries.
If the product is a manufactured or subcontracted product it will have a Bill of Materials (BOM) listing the components that are required either by the manufacturing process or that need to be sent to a subcontractor. It’s also not unusual for the design of a product to evolve during its lifetime and to manage this, the standard functionality of Sage X3 Version Control can be used; managing and enforcing the versions and revisions to the product.
Using demand forecasts, sales orders and inventory shortages as inputs, aligned to the correct version of a product BOM, Sage X3’s comprehensive Materials Resource Planning (MRP) process can be utilised to calculate the quantities required to be manufactured or purchased to maintain the correct/required quantities of the desired products. Using detailed parameterisation such as Economic Order quantities and Safety Stock quantities, the system will ensure that the right quantity of inventory is delivered.
Getting the inventory to your warehouse is only the first stage of efficient inventory management. Utilising pallet management, barcode scanning and labelling, along with location management and system-driven replenishment, you can be sure that not only is the product delivered to your warehouse in the right quantities, but it is also stored, picked, and despatched in the right quantities too.
The right time
There is no point in just getting the right number of products delivered if it is delivered too late, or even too early, enforcing an increase in the inventory holding cost and causing problems in the warehouse with lack of storage space.
Sage X3 can help you in multiple ways to get the right product at the right time; including lead times for all products and suppliers. To assist further with the calculation of precisely when orders for materials need to be placed, materials and manufacturing operations are linked together; ensuring that orders are placed with a delivery date that is “Just In Time” for when the materials are required on the shop floor.
Furthermore, the MRP process, each time it is run, will continue to monitor the outstanding purchase orders advising of required adjustments to dates in the case of the inevitable movement in demand.
The right cost
Getting the right product into the warehouse at the right time, or for manufacturers making it in the first place, is a waste of effort if it is going to be too expensive to sell and make a reasonable margin on. You are, after all, in business to at least make some profit! Keeping tabs on the various costs is, therefore, an essential part of inventory management. These are both the price paid to the supplier, and less obvious costs such as freight, duty and warehousing/administration overheads.
Getting the right cost starts with managing supplier prices; using the comprehensive pricing engine in Sage X3 to ensure that the correct price is calculated on the purchase order, thus avoiding any nasty surprises when the supplier’s invoice is received.
Furthermore “landed costs” can be calculated as part of the receipt costs making allowances and accounting entries for such things as freight and duty. In addition, cost prices can include complex overheads that can recover the normally hidden administrative costs at the point of receipt.
The costs incurred in manufacturing processes also require careful control as no matter how good the purchasing team are, margins can be won and lost in the efficiency of the manufacturing process. Using the cost analysis tools provided as standard with Sage X3 you can compare what was planned to what actually happened on the shop floor at a cost level; giving you detailed insight into any issues and allowing you to take any remedial action to improve the productivity and hence future margins too.
For every movement of inventory into or out of the business, there is a financial impact. It is therefore vital that the correct costing methodology is chosen to reflect the most accurate overall value. Sage X3 can value inventory in several ways, including standard cost, average cost, or FIFO cost; with comprehensive tools to analyse and ‘create’ the costs. Every inventory movement is valued and updated in real-time into the balance sheet and financials.
No one said that managing a supply chain would be easy, but correctly managed inventory can be a massive boost to a business in terms of both increased sales due to better availability and better-supported margins from correct costs.
The importance of Right Product, Right Time, Right Cost cannot be understated, and with the support of Sage X3’s suite of sophisticated tools, the task of effectively managing Operations may have just got a little easier; and with all of this reflected real-time in the financials, even the Finance head’s job suddenly got a little easier too.
Right Product – Right Quantity, Right Version
Right Time – On Time, Just in Time
Right Cost – Right Price, Right Margin
All in REAL TIME
Download our Inventory Excellence On-Demand Event to watch a demonstration on how to optimise inventory processes with Sage X3.