How to Use SalesPad and Dynamics GP to Increase Distribution Business Profits
Successful distribution businesses develop and implement business and IT strategies that leverage data to maximize operating efficiencies and increase profits. Effective use of operational and sales data can help reduce costs inherent to a distribution business by improving inventory management and warehouse space utilization, and by optimizing capital allocation. Additionally, improving data exchange methods can streamline administrative workflows to further increase profit margins.
Inventory Management and Warehouse Space Utilization
Distribution businesses typically buy in relatively large batches and sell in smaller amounts, to a relatively large number of customers. This situation creates challenges for efficiently staging and moving inventory, and for limiting warehouse space consumption. An efficient means of optimizing inventory and warehouse utilization is necessary to control and limit the associated costs.
Using SalesPad’s inventory analysis, you can more accurately forecast demand trends, based on rolling average sales history. This information helps the buying agents align orders with anticipated sales volumes without having to manually review and compile sales history reports. The automated inventory analysis not only saves time but also prevents over-ordering, which promotes efficient use of warehouse space and limits exposure to slow-moving (no moving) inventory. Additionally, you can configure the tool to provide alerts at pre-determined re-order points so that you can ensure availability for anticipated sales.
SalesPad also includes a warehouse configuration feature that allows you to set forward bin capacities that will trigger a bin replenishment suggestion to move material from reserve areas to the picking areas. This feature enables efficient materials movement, an important aspect of ‘just in time delivery’.
Optimized Capital Allocation
By focusing on inventory management and warehouse space utilization, you reduce the amount of inventory you need to carry to support a given sales volume. This ultimately frees up capital that you can deploy to grow your business.
Tracking inventory turnover ratio provides a means of measuring capital allocation efficiency for a distribution business. We define inventory turnover ratio as (Cost of Goods Sold) / (Average Inventory) for a given time period, typically one year. Consider, for example, a distribution business that sells 10,000 units in a year, and maintains an average of 5,000 units in inventory throughout the year. This results in an inventory turnover ratio of 2.0.
In the example above, if the company maintains the same annual sales volume, but improves inventory management practices to reduce the average inventory from 5,000 units to 2,500 units, they increased the inventory ratio from 2.0 to 4.0. This improvement in turnover ratio means that on average, each unit remained in inventory for 91 days after improvements, compared to 183 days before improvements.
Such inventory management improvements free up capital and warehouse space, both of which create opportunities to grow your business. The challenge with this measurement is when you monitor this key performance indicator (KPI) for every SKU and you have 50,000 SKU’s. Being able to define an acceptable turnover range while quickly either identifying the SKUs that are out of the desired range or, more importantly, beginning to move out of the desired range is critical to effective use of this KPI. Being able to anticipate future inventory rates of turnover can provide an opportunity to refine purchasing plans to reduce inventory dramatically without missing possible sales.
Improved Data Exchange and ERP Efficiency
EDI (Electronic Data Exchange) enables the transfer of business documents across a variety of platforms and programs. The use of EDI has been instrumental in streamlining B2B communications and communications between different functions within a business. One of the biggest challenges with embracing EDI occurs when your systems were not built specifically for the EDI process. SalesPad not only provides an extremely efficient and effective single pane of glass for managing EDI but also collaborates with SPS Commerce to have most major trading partners document definitions pre-mapped to the SalesPad transaction database. This means that onboarding new trading partners is much more mechanical and requires dramatically less testing and implementation efforts. All of this translates to less cost and fewer headaches.
Salespad Desktop provides a full front-end order entry, purchasing, sales, and inventory management solution that integrates with Microsoft Dynamics GP. SalesPad Desktop is the complete package for distribution and manufacturing companies.
CIS (Custom Information Services) is a SalesPad Partner. CIS proactively helps businesses evaluate their technology and “best business” practices, enabling businesses to be the most productive and profitable that they can be. Feel free to consult with CIS to learn how SalesPad and Dynamics GP can benefit your business.