ERP distribution software such as Acumatica ERP provides a powerful method of managing companywide data. Accounting, finance, operations, warehouse, inventory, and distribution data flow through one dashboard updated in real-time. It provides a window into your company’s key performance indicators, a way to measure, monitor, and improve all aspects of warehouse management.
There’s one aspect of ERP distribution software we haven’t delved into; it’s the ability to support decision making that leads to higher profits. Every business seeks to increase profits and decrease expenses. How you go about doing that is as unique to your business as a fingerprint is to a person.
Download the Distributor’s Guide to Improving Profits.
Let’s take a look at five aspects of Acumatica distribution software and how each can enhance your company’s profitability.
Five KPIs to Enhance Warehouse Profitability
KPIs, or key performance indicators, establish benchmarks by which progress can be measured. The following KPIs can be measured to assess profitability. Once measured, changes can be made to processes to enhance profitability, but the first step is to measure each.
#1 Inventory Turnover
Inventory turnover refers to how quickly goods move from receipt to order fulfillment. Typically, warehouse managers run their averages over time to determine the average turnover rate for categories or items.
This is the first benchmark, or KPI, you need to start improving profits. Inventory that gathers dust in the dark corners of the warehouse decreases in value with every passing day. The faster you can move it out of inventory and into customers’ hands, the better.
Faster inventory turnover typically equates with better sales, which in turn contributes to higher profits. If you see slow inventory turnover rates or averages that do not improve over time, check the following:
- Which categories aren’t moving as quickly as you’d like?
- Can seasonal fluctuations account for the changes in turnover?
- Has anything changed in the macroeconomic environment that might affect turnover?
- Has anything shifted within the industry to affect turnover?
- Do you have any customers who order large volumes, bulk, or high quantities? If so, have they changed their ordering pattern such that it might affect the overall warehouse turnover rate?
- Can you pull historical data from the warehouse management system and compare previous quarters and years to determine overall trends?
With this information available via the ERP distribution software, you’ll be able to manage what you can measure. The goal is to shorten turnover time without artificial inducements such as sales. The first step, however, is to measure what the current turnover rate is; determine what, if anything, has impacted it; and then adjust your inventory, pricing, advertising, and other factors to see which influences turnover rates for profitability.
#2 Order Status Data
You can learn a lot about your business by reviewing reports on orders from your system. There are several order reports and KPIs to watch:
- Orders pending
- Orders shipped
- Time to delivery
Orders pending refer to the number of orders in the system waiting for fulfillment. Some companies use this measure to assess how rapidly their shipping teams can get items out the door and into customers’ waiting hands.
Customers always want goods now, not later, and big companies such as Amazon continue to raise the bar for the shortest shipping times. It’s gotten so tight that people seem to expect their computers to spit out products the second they click “Buy Now.”
Any lags in shipping time can lead to frustration and customers turning to competitors for similar products. While you can’t influence shipping times of your major carriers, you can shorten the time it takes for an order to move from payment to pick, pack, and ship. Once you know how long it’s taking for the order to be processed and shipped, you can figure out ways to:
- Add technology, such as hands-free picking, to speed picking times
- Adjust routes through the warehouse to tighten warehouse transit times
- Move bins and shelves so that frequently purchased items are closer to the picking area
By improving shipping times, you’ll retain customers and enhance customer loyalty. This leads to repeat sales at a lower cost per acquisition since less money needs to be spent on advertising and marketing. Lowering costs is a tried and true method of increasing net profits.
#3 Profitability by Class and Item
Lastly, review data on profitability by inventory class and item. Sales may be brisk for one item, but the profitability is low; on the other hand, you may sell only one of an item annually, but the profit margin is quite high, and more than makes up for the low turnover rate.
Another area of profitability that deserves attention is profitability by customers. Not all customers are created equal. Some require more service than others, and while that may be part and parcel of your business model, it does chip away at the profitability per item if it takes longer to close the sale.
Reports on profit margins provide the information needed to establish profitability benchmarks. Comparing percentages, rather than actual numbers, is also helpful since percentages smooth out any tricky numbers that make items look better than they are in reality. An item that sells for $100,000 looks great on paper compared to an item that sells for $10,000, but if the profit % for the first item is 1% and 25% on the second item, it’s more profitable to sell more of the lower priced item.
The Golden Age of Data
Manufacturers and warehouse distribution businesses are entering what’s been dubbed the “golden age of data.” From barcodes to RFID tags, the Internet of Things, and all sorts of monitoring and tracking software, if information can be measured, it is, and then used in the ERP system to make a difference.
If you’re confused about where to start with all this data, Acumatica makes it easier for the average business owner who doesn’t have time for complicated systems to establish KPIs such as the ones we’ve talked about above. The system comes with KPIs “right out of the box,” ready to go. Your goal is to decide what you need and make any adjustments or changes to suit your business requirements, industry, and other factors.
Caveats to KPIs
One caveat to all this talk of data—it’s easy to experience “data overwhelm.” It’s sort of like an ice cream headache, but from the rush of data streaming at you. In other words, it’s too much of a good thing.
With so much data available, it’s easy to lose sight of the forest for the trees. Each data element seems essential. So much information is available to you. How do you choose what to measure?
The key is to focus on what’s critical to your business. Some companies may feel that turnover rates do not matter as much as fast shipping. Their products keep for months, if not years, but when businesses need them, they need them in a hurry. Other companies deal with materials that spoil or have a limited shelf life and need to maintain rapid turnover rates. For these companies, it’s critical to measure the turnover rate but probably not as relevant to measure things like time to ship.
- ERP distribution software provides the tools to measure numerous data points
- You can’t improve what you can’t measure
- However, you can quickly become overwhelmed by measuring too many items
- Choose which business metrics are most important you and set up KPIs
- Use the “out of the box” KPIs in Acumatica to get started
- Adjust, measure, and repeat as needed to enhance profitability
Business owners who once thought that an advanced warehouse management system was out of reach can now find what they need in an affordable, flexible cloud-based solution—Acumatica.
It’s easy to use, comes with many features already set up so you can get it going quickly, and offers a refreshing approach to data collection and management. Features are created and updated based on user input and feedback, and Acumatica takes its commitment to customer service seriously. And, of course, Acumatica is easily customized. From the dashboard to the reports, you can set it up to get the data that you need, not the data that the company thinks you need.
Acumatica offers cloud, SaaS, and on-premises deployment, so there’s flexibility in how you use the system, too, along with flexible site licenses that let you determine what works best for your business.
With the golden age of data upon us, it’s essential to have the right ERP system to measure, monitor, and use the influx of data from your company. Establishing KPIs, measuring, and monitoring them, then adjusting factors to improve upon base measurements, is the best way to improve profitability. You may not be able to control the cost of goods sold entirely. Fuel prices may rise, making shipping to the end customer more expensive, but you can control many other factors in the sales cycle to increase profits and decrease expenses. With the right ERP distribution software, it’s easier to set goals and measure your progress towards improved profitability.
We also have a white paper available on Acumatica ERP distribution and KPIs that you might find helpful.
Acumatica distribution and manufacturing software plus cloud ERP can provide powerful day to day support, real-time insights into your company’s finances, and enhanced features like lead management and customer relationship management. For more information, please contact Mindover Software today at 512-990-3994.