Mitigating rising supply chain costs with ERP
With inflation rates higher than ever, many businesses are being caught between rapidly rising supply chain costs and incremental increases in their own selling prices: half (50%) of currently trading businesses reported an increase in the prices of goods or services bought in June 2022, while the percentage of businesses who reported an increase in the prices of goods or services sold (20%) continued to steadily decrease, down from 24% in March 2022.
There seems to be no end in sight to the squeeze on margins as energy costs rise and the impact of Brexit, Covid-19, chip shortages, and the Ukraine war continue to make themselves felt. We recently surveyed decision-makers in the wholesale and distribution sector and found that 81% of respondents would be focusing on managing cashflow and ensuring a robust sales strategy/route to market (81%), while 78% had adopted software that easily adapts to new business models.
So, how can businesses mitigate the impact of these external pressures on profitability, while exploring new business models to ensure longevity? For some, strategies such as building up stock levels now to protect against future supplier price increases may be an option, but this kind of approach can only go so far given limited room to hold large volumes of stock. Instead, we believe that a more enduring and effective approach is to reduce cost and improve business efficiency by increasing the visibility of all operations, removing duplication, and streamlining processes via an ERP system.
ERP consolidates business operations to increase business flexibility and agility. This process of consolidation helps the business to ride the storm of rising costs, innovate and thrive through:
Accurate, real-time reporting
ERP systems make information that is (or was) stored in multiple separate systems and databases available in a single, unified structure.
Data from different systems is not simply dumped into a single location, instead, it is linked intelligently making it possible to match, for example, automatic allocation of stock against sales orders or delivery tracking quickly and simply. Understanding precisely what is happening within the business becomes simpler because the ERP system can provide a real-time view of data such as stock levels and production flows. This unobstructed perspective on the state of business operations supports faster and more informed decision-making.
An example of enhanced reporting leading to better stock management and improved efficiency is NVC Lighting UK, a wholesaler with a wide range of commercial, industrial, amenity and exterior lighting products. The firm was facing challenges with stock management, efficiency and customer service, running two separate systems that were not linked. Problems included stock accuracy issues, inaccurate location of products, and warehouse inefficiencies which in turn affected stock values.
With ERP software, the team was able to implement perpetual stock inventories as opposed to annual stock takes, providing greater stock accuracy and enabling the business to increase its revenue and profit, because of the additional trading days freed up as a result of the implementation. NVC also made efficiencies in picking, organising stock locations, identifying best-sellers and moving stock around to the most efficient location.
Reducing wastage, cutting costs and streamlining processes
For businesses where inventory management is important, real-time reporting of stock levels makes it easier to respond when levels change. With an ERP system, this better visibility translates to improvements in stock management, maximising the usage of valuable warehouse space, reducing wasted space and better balancing of stock levels against customer demand and supplier availability.
The seamless flow of information ERP enables makes it possible to automate processes that might previously have involved manual steps. By bringing together information from different teams and systems, slow, manual processes can be reduced or even eliminated through automation.
Anderson Electrical – a family-run wholesaler and distributor of cleaning machine products – applied ERP software to cut manual, error-prone steps from their processes. By implementing Profit4 ERP software, the firm was no longer running out of stock and buying and selling prices were more accurate, allowing it to offer a better and more transparent customer experience. During a period heavily affected by the pandemic restrictions, the company had a record year with turnover up by 40 per cent.
Centralising business functions and reducing spend on third-party applications
The centralisation of a wide set of business functions and information within an ERP system enables a business to reduce spend on disparate third-party systems while enhancing information flow through the business.
68% of respondents in our recent survey saw benefits of integrating disparate systems. 45% listing the main reason to use a single system as removing duplication of work across different departments, tied closely to 44% citing reduced administration time, and 44% stating improved efficiencies through greater accuracy of information.
Express Cutting & Welding Services found that the integration afforded by an ERP system led to far better customer service and efficiency. Customer details and contacts could be maintained centrally and stock management was transformed, even while, during the pandemic, operating on reduced staffing levels.
Should you implement an ERP?
ERP can help future-proof the business. Good, timely information provision helps businesses make smarter, data-driven decisions, ultimately improving efficiency and giving you the confidence to innovate while mitigating supply chain costs. Innovation can be introduced with additional lines, territories or expanding into new markets.
Implementing an ERP is not a trivial undertaking, there are time, cost and resource considerations to factor into any decision. In our survey on profitability for UK wholesalers, respondents listed cost as the primary barrier to implementing an ERP system. However, with the right licensing model and implementation approach, the savings and benefits can far outweigh the costs.
This is what TBS Oxford, a cutting tools distributor, found when adopting an ERP system. The firm’s owner, “You shouldn’t be worried about any initial costs of implementing an ERP system, you should be worried about the hidden costs of what you’re doing right now. You’ll save so much time when you have the right system as it’s doing everything for you and doing it properly. I was doing things three or four times in QuickBooks, but now I can quote, convert to order and make a PO in half a dozen clicks; that would have taken me hours before. That’s the cost you need to worry about and to not change will hinder you more. The subscription model of Profit4 means the ongoing costs are small and actually, it isn’t costing us money because of the hidden costs it’s taken away.”
There has never been a more important time to future-proof our businesses. Only then can we ensure profitability while exploring growth opportunities even in these uncertain times. Full visibility of all processes and data-driven decision-making are the key to business continuation and prosperity.