I often hear people refer to their investment in an ERP system, while ignoring the biggest payback a good ERP system can return. While many ERP systems can improve efficiencies within the accounting department, the biggest paybacks are the ones that improve production and inventory. Over the past 30 years I have worked with a lot of distributors and manufacturers who made money despite themselves.
In today’s world of accelerated business and short lead times, it is impossible for even the best purchasing and planning people within a company to keep up with all the requirements. Many times, a missed or delayed requirement can send shockwaves throughout your entire operation.
I have seen situations where companies have focused on their more expensive areas, only to find the inexpensive area held up production or the shipment of a Sales Order. A good planning tool should be able to handle all your items and give you an accurate view of your plan.
For distributors, I had a case where I explained the calculation for overstocked inventory and then allowed them to pick a dozen items to be reviewed. Of the dozen items, every one of them was overstocked. For each one, they had a story of how and why they set inventory levels so high, but all the stories were a one-time situation.
Many experts estimate that the average distributor carries between 20 and 50 percent overstock and deadstock. The cost is not just the inventory itself, but the insurance and warehouse space. Carrying costs can run over 10 percent per year, which makes overstock and deadstock even more expensive. My favorite experience was when a client had implemented the ERP, and then saw their inventory drop by 20 percent, and their fill rates increase by over 10 percent.
Proactive, Not Reactive
With a good ERP system like Microsoft Dynamics 365 Business Central, your procurement of inventory becomes proactive rather than reactive. Your planning personnel spend more time configuring their plan than reacting to missed procurements. In most implementations the system can handle 80-90 percent of the replenishment with little manual override. This leaves time for those items that require manual review because they just don’t fit standard planning practices.
For the larger distributors who often deal with tens of thousands of different items, there are even most sophisticated extension products that can be purchased for Microsoft Dynamics 365 Business Central. These include usage-based procurement systems that look at the historical sales of an item and can calculate the suggested stocking levels, even for seasonal items.
Increased Cash Flow
For manufacturers, I have seen where using a well-run Dynamics 365 Business Central Manufacturing Requirements Planning (MRP) system, they were able to cut the lead time for products by months, while not increasing their production costs. This not only reduced their Work in Process dollars but increased cash flow by months.
When reviewing and implementing an ERP system, it’s okay to confirm its ability to handle your accounting needs, but make sure you are prepared to utilize its MRP and Replenishment capabilities. Reducing costs through just in time inventory, less overstock, less Work in Process; that is where the largest paybacks normally reside.
If you would like to discuss Dynamics 365 Business Central with us, please get in touch.
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