Month: March 2022

Nearly every company today uses fixed assets to provide services to customers and make profits.

However, fixed assets have life cycles and limitations.

This makes fixed asset lifecycle management very important.

For steady revenue generation, it is essential that assets become more accessible and are managed better.

Businesses will be able to understand and evaluate asset life cycles with digital tools like asset management software like the one offered by Tranquil.

But let’s first have a good understanding of the main terms.

Asset

An asset is anything that can add value to an organization.

A fixed asset is something that is purchased to be used in the long term, without being converted into cash quickly – building, machinery, furniture, and so on.

Asset Management

The various activities undertaken by an organization to extract value from assets are referred to as asset management.

These are usually managed by specific professionals, like say a facility manager for elevators and furniture, and repairs and regular servicing or maintenance help to increase the life of an asset.

Why is Asset Management Necessary?

In addition to delivering value from an asset, taking the right decision regarding the assets is also a part of asset management.

Assets can fail or get damaged if not cared for and maintained properly – which makes maintenance an important part of asset management.

One of the chief aims of asset management is generating the minimal life cost of the asset overall.

Remember that it can be impacted by factors like business continuity, or risk in the decision-making process.

Thanks to asset management, an organization can observe and analyze asset performance in various stages.

It also includes striking a balance between the costs and the threats against the performance level of the assets, which is important to get the maximum ROI and to maintain organizational goals.

What is Asset Life Cycle?

The most important part of asset management is to understand the fixed asset life cycle properly.

There are a few important phases in the asset’s lifecycle, which begin when your business purchases an asset and end when you decide to dispose of it.

Repairs, upgrades, depreciation, operation – all these are included in an asset’s life cycle.

Throughout the asset’s life cycle, several accounting issues may crop up, depending on the accountant’s need for decisions to be made about the value of the asset or financial reporting.

What is Asset Life Cycle Management?

Assets are critical to a business, and hence it’s crucial that you know exactly what assets you have, what their value is, where they are located, and in what condition they are.

This will help you to plan for future tasks and also fulfill your business obligations.

Asset life cycle management is where the profits the assets deliver are optimized, and held or used by the organization across its life cycle.

The services delivered by a business normally address every stage in an asset’s life cycle regardless of the industry, scale, opportunity, or scope.

ALSO READ: Guide on How Do ERP Systems Work

Why Asset Life Cycle Management Is Important?

Understanding the life cycle of fixed assets is essential for a company, from the time it is acquired till its disposal.

Regardless of the business size or what industry it is in, a company depends on its fixed assets.

While assets are useful over several years where it provides immense value to the business, it does go through wear and tear, decreasing its efficiency and slowly, its life itself.

Repairs and maintenance services can extend the life of an asset, but eventually, it will need to be replaced, as the repairs may outweigh the cost of a new asset.

When asset management is carried out strategically, a business can predict the time an asset is likely to reach its peak performance, and how long it will last before it requires maintenance or replacement.

An in-depth data-driven approach to fixed asset life cycle accounting helps businesses to ascertain that they extract the maximum life and value from an asset. It also helps to:

• Calculate the value of asset depreciation
• Develop strategies for preventive maintenance
• Define operational roles of assets
• Ensure compliance with regulatory standards
• Calculate the cost of purchasing and replacing
• Integrate assets into tracking systems

ALSO READ:  Important ERP Modules and Functions 

Stages of a Fixed Asset Life Cycle

Now that we have gained clarity regarding what fixed assets are and why their life cycles should be properly managed, let us understand the various stages of a fixed asset in some detail.

Most experts agree that there are four stages in the life cycle of an asset -, but some add one more. To have a thorough understanding of an asset’s life cycle, let us examine all five.

1. Planning

The very first phase in the life cycle of an asset. Here, you need to plan what assets your business requires, after evaluating the condition of the assets you have at present.

You also need to plan how you will deploy the asset, how it will impact your services, and whether it will help you achieve your business goals.

This helps you to have a very clear understanding of what role the asset is expected to play in your business for the coming 10, 20, or more years.

2. Acquisition or Procuring of the Asset

Individual businesses will have their own strategies for asset acquisition – for example, some companies may internally develop or construct their assets using their own employees; here they need to consider what percentage of the wages given to the employees should be calculated as part of the asset.

If it is outrightly purchased from outside, of course, the entire cost is allocated to the asset itself – including transportation charges if any.

Once the asset is installed, regardless of whether it was internally developed or purchased, it is placed under real property inventory and tracked through its life cycle.

ALSO READ: Ways to Improve the Procurement Process

3. Usage and Depreciation

Over time and with use, your asset value starts dropping.

You can avail tax benefits by accounting for asset depreciation and thereby reducing your net profit.

4. The Operation, Repairs, and Maintenance

This is a crucial phase in the life cycle of a fixed asset.

When any piece of machinery or equipment has been in use for long, it undergoes wear and tear and necessitates repairs.

If not regularly serviced and maintained properly, the asset may require expensive repairs which can throw your budget out of gear, and also impact your everyday operations.

With regular servicing, the lifespan of the asset can be increased, so you need to focus on ways to optimize operation to enhance its potential.

Once the asset is deployed, it is used or operated, and this is the longest phase in the life cycle of the asset.

It shows the way in which the asset is applied and managed, including the necessary repairs and maintenance activities.

When the asset is put to work in the business, it improves operations and helps in revenue generation.

An asset should be monitored and examined for unexpected performance problems that could crop up.

Without this, expensive repairs and replacement of parts.

ALSO READ: ERP Software in Warehouse and Fixed Asset Management

As the asset’s life progresses, wear and tear also increases, and you may need more frequent maintenance to prolong its life and the value it can offer your company.

This is not limited to repairs; it also includes upgrades and modifications so that the asset stays relevant in relation to the dynamic work environment and business requirements.

Approaches to maintenance differ from company to company; while some may take the reactive approach, others may prefer a proactive or preventive strategy of maintenance.

However, every strategy has some common ends, like:

• Maximizing uptime
• Decreasing expenses related to emergency repairs
• Reducing downtime
• Enhance life expectancy of the asset

By focusing on areas that have the potential to be improved, maintenance activities can even cause an asset to improve its performance from its original level.

5. Disposal

Regardless of how well you optimize asset operation and maintenance, there comes a stage in the asset’s life when it is no longer of use to the business.

While the most common reason is that it has aged and is no longer capable of performing well, it could also be due to reasons like technology change, or shutting down operations in that location, and so on.

Whatever the case, disposal of the asset should also be handled properly. There are several options, like:

• Donate it to some charity
• Sell it outright or as scrap
• Exchange it for a more advanced version or model of the same machine or equipment

It is essential that the value of the asset is properly calculated in order to get the tax benefit – you need to account for depreciation here.

Of course, this needs to be distinguished from a new asset that was defective or got completely damaged within a few days of its purchase – mostly in such cases, the manufacturer or seller may give you a replacement free of charge.

What is the Priority of the Asset?

Some assets may need more maintenance than what you expect.

Frequent repairs or servicing is time-consuming, uses up your resources, and reduces organizational productivity.

If you find this happening with any asset, the wise thing would be to dispose of the asset.

Another instance you may have to dispose of or exchange the asset would be, a surge in demand which has been increasing at a steady pace.

The asset you have currently may not be capable of helping you fulfill the demand, and you may need to trade it in for one with higher capacity – or you could just purchase an additional one.

ALSO READ: Challenges in Procurement and Supply Chain

What Are the Benefits of Asset Life Cycle Management?

Asset life cycle management offers several benefits like:

• Helping you define your requirements more efficiently
• A reliable system will help you in making data-driven purchase order decisions
• Improved dynamics for resource restoration
• Enhance the quality of IT services in your organization
• Knowledge about the total ownership cost of an asset every time
• Asset managers can make the appropriate decisions about assets like when to retire or dispose of them, and so on.

Summary

Fixed asset lifecycle management is a vital activity for any business as it allows you to manage your valuable assets and prolong their life, helping you be more productive. An asset management software and application can help ensure that the asset is properly maintained, with timely upgrades being affected, being maintained and repaired in time, and disposed of effectively at the end of its life. Asset management software can help optimize the life cycle and the value addition of an asset. The right software can help asset managers to make data-driven, informed decisions that can lead to better outcomes.

See how it works for yourself! Schedule a demo with us at a time of your convenience, and we will explain how your assets can be managed more efficiently.

 

Most companies today use an ERP system like Tranquil to streamline and automate their business processes and be more efficient and agile.

One of the important modules in an ERP is HR .

It helps HR personnel to focus on more critical tasks and leave the mundane tasks to the software.

Additionally, they also have an employee self service module for the use of employees; this is sometimes incorporated a part of ERP or HCM systems or as a standalone solution.

What is an ESS System?

ESS allows employees to handle many of their administrative needs by themselves through a specific web or internet portal.

Employees can easy to update all their personal information, access hr-related information concerned to them, download payslip, enroll for benefits, apply for expense compensation, etc.

Several portals have now become advanced and managing insurance plans and other employee benefits can also be handled by employees.

Previously, these tasks were performed manually by the HR department, and on paper.

ESS portals save time, effort, and money, leaving little scope for error.

Decreased expenses in administration allow employers to offer better benefits to employees.

ALSO READ: Must Have HRMS Modules and Features 

Why Employee Self-Service?

The employee market is becoming increasingly competitive, and it is essential for companies to create a positive and vibrant work atmosphere.

One way of doing this is to give employees direct control over important information that pertains to them.

Today these solutions are optimized for mobile and networking platforms, and are an important part of employee retention and engagement plans; other programs and activities are recognition, continued learning through e-learning systems, social activities across the organization, health checkups, wellness programs, and so on.

How to Create Self-service Experiences for Customers and Employees?

Content and delivery are the main elements in any system that allows for self-service – software and knowledge.

Software is used to deliver the knowledge (which you load into the system) to employees).

A self-service experience is called a portal, as it literally is a gateway to a particular topic or information set.

That brings us to the next question as to how they actually work.

ALSO READ: Benefits of ERP in Accounting and Financial Management

How Do Employee Self-Service Portals Work?

An ESS system provides the full range of features by combining searchable databases and interactive web apps.

Automated systems are often combined with ticket-based help desks or live chat in the interactive sections of ESS portals.

The knowledge bases include discussions or Q&A sessions where employees answer questions posed by other employees regarding IT and HR.

While each company may have different requirements for an employee self-service system, there are quite a few common features, making it easy for companies to purchase third-party software rather than getting unique solutions made.

Features of HR Self-Service Software

Most ESS solutions will have these features:

• Payroll functions – changing tax deduction and withholding amounts, accessing pay slips online, logging hours worked, scheduling days off, etc. by employees themselves
• Benefit programs – browsing through different plans offered by the employer and choosing what the employee likes, managing enrollment into the programs, and updating details like major life events
• Allowing employees to alter plans for retirement investment, like withdrawing money, setting up loans, modifying contributions by employees, and so on
• Managing expenses
• Managing business travel and filling for reimbursement

ALSO READ: Guide on How Do ERP Systems Work

Additionally, an ESS portal may also have these features:

• Employee recruitment – employees can search for available positions, apply for jobs, and check the status of applications; they can also get alerts when similar jobs are posted in the future
• Onboarding employees through virtual orientation, where they get important information necessary to be able to perform their jobs well. It enables companies to track new recruits and make them feel welcome and connect with them virtually regardless of their location.
• Providing training for continued education and upskilling of employees through e-learning and computer-based testing. Their progress in the course and performance in tests can be easily tracked.
• Employees can also complete self-evaluation exercises, update their training and development activities, set goals, etc. They can also examine, reply to and sign their yearly performance evaluation reports.
• Some companies are encouraging employees to adopt healthier lifestyles by including wellness surveys in ESS platforms.

Benefits of ESS

Not only do ESS solutions grant employees greater economy to manage their leaves, payroll, and benefits configurations, they help HR personnel to save time from routine tasks and focus on more important work.

ESS helps employees feel valued, more connected by their companies, increase their productivity, and be relatively happy by creating a more collaborative and inclusive work culture.

1. Managing Shifts in Employee Expectations with Self Service

Every employee wants to be heard today – which while easy in smaller firms, may be near impossible in large companies.

Thanks to ESS systems, however, it is now possible for departmental and/or regional managers to hear every employee, thereby making it easy for them to fulfil employee expectations and resolve their grievances.

2. Anywhere, Anytime Accessibility

Most self-service portals are cloud-driven, enabling employees to access the portal from wherever they are, on any device, and whenever they need to.

There is no longer any need to be at the office computer to log in to the portal.

They can also post queries or update information at whatever time is convenient for them as well.

ALSO READ: ERP vs CRM

3. More Streamlined Systems

In earlier times, every bit of information relating to human resources was manually entered in a system by a specially trained employee; payroll information was handled by either a different department (say accounts) or outsourced to a third party.

Other revenue information was again the responsibility of a different department.

With self-service systems, however, all of these activities are integrated and streamlined, enabling easy access to all the stakeholders.

4. Fewer Errors

While the ESS portal enables quicker and more efficient entry and transfer of data, it also helps minimize and even eliminate errors.

One of the main drawbacks of manual data entry is the presence of human errors.

Thanks to self-service systems and almost 0 errors, HR managers can easily pick out errors in recent additions of applicant or employee information.

5. Improving HR Function

By implementing an ESS system, HR departments can significantly improve their functionality.

They need not focus on mundane, repetitive, and time-consuming activities, and can instead concentrate fully on issues where the human touch is important.

Data entry and providing responses to simple employee inquiries is no longer an activity that necessitates time and efforts from HR managers or other staff.

ALSO READ: How to Choose an ERP Software to Enhance your Purchase Management?

6. Decreased HR Workload

The biggest advantage of the self-service portals for employees is that it helps to reduce the workload of HR employees – who have mountains of work to do every day.

Any activity that can be performed by employees themselves is a great help to the HR department.

With employees updating their personal information, going over their schedules, checking payroll and printing pay slips, logging their work times, choosing benefit programs, adjusting timesheets, and so on, it takes a load off the minds of HR personnel.

Without a self-service portal, all of these tasks would have to be completed by the HR department – and they can be pretty time consuming.

This is more so the case in larger companies with a lot of employees.

Now HR managers can focus on more value-adding tasks with the time freed up from such mundane tasks.

7. More Empowered Employees

Thanks to self-service portals, employees are more empowered now than ever before.

They can access and edit their personal information, and they can do this from any computer or mobile device with an internet connection.

They can access make changes in:

• Paid leave requests
• Personal and contact information
• Vacation days
• Information on pay rate
• HR inquiries, reports, and other information
• Performance evaluations
• Benefits programs like insurance, medical, and so on

With direct access to their information, employees have more control, and it gives them greater satisfaction.

They also stay more engaged with their employers.

They get information regarding training opportunities to enhance their knowledge and skills and have better career growth.

Employees who engage more are more likely to be loyal to the organization and have enhanced productivity as well.

Employees who are serious about their careers are likely to look for opportunities to upskill and improve themselves, to advance their careers.

Such employees contribute more to the company and also help to reduce employee attrition and turnover.

ALSO READ: Understanding Different ERP Systems

8. Easier Self Service Compliance and Auditing

Thanks to the easy data entry and more efficient HR functions, auditing has become much simpler.

It has resulted in improved integrity of data, as well as ensuring better compliance with existing regulations as well as company policies.

Here are a few other benefits in short:

• It simplifies communication between organizations and employees with regard to employee communication materials like carrier directories, summary plan descriptions, new recruit forms, handbooks, and benefit books, for example.
• Improved relationships with insurance brokers and carriers with information sharing, leading to more diverse and enhanced health plan options for the organization and employees.
• Reinforces corporate culture
• Accurate tracking of hours logged by employees

Optimize Your Employee Self-Service Portal

For your ESS to be successful, it is essential that you have a knowledge base that contains important information for employees.

Only if it has the information your employees require, can it be useful. How will you know what to include and what is relevant?

Look at the most searched information by your employees, and create related content, keeping those topics in mind.

Google will help you identify other topics employees are looking up.

Also, remember that this database will have to keep evolving – just like your business.

You will need to keep updating it so that your ESS is used to its full potential, and you also help your employees be well informed, and thrive in their careers.

Review your content regularly to ensure that it is up-to-date and relevant. Consider letting employees rate the content so you know what to improve.

ALSO READ: Factors for a Successful ERP Implementation

Challenges of Employee Self-Service

While it offers numerous benefits, there are some challenges associated with the ESS as well.

It is technologically complicated to integrated multiple self-service channels like retirement accounts, wellness programs, portals, intranet, and so on, as login procedures and data formats are likely to be vastly different.

It can take a long time to educate employees about the capabilities and features of the system and to motivate them to start using the portal.

Upgrading to new systems from legacy self-service systems can pose several problems – mainly regarding which vendor to choose.

Companies have to think whether to purchase different systems from different vendors to server the multiple purposes, and then whether they may be compatible, or whether to have a specialized module in an ERP.

At Tranquil, we can provide an ESS solution that is a perfect fit for your specific business needs. Schedule a demo with us at your convenience, and we will show you how it works. We will be happy to answer any queries that you may have for us.

 

If we talk about any company that deals in products, inventory is the most critical part of their business operations; it is absolutely essential that you manage your inventory properly to keep your operations running smoothly.

Inventory management is not limited to the products on your shelves or in the warehouse.

It is a complex, multifaceted activity.

In this article, we will examine two important types of inventory: pipeline inventory and decoupling inventory.

What is Pipeline Inventory?

The term pipeline inventory means whatever stock of products that have not yet reached the business warehouse but is on the way, or in the ‘pipeline’.

When a business purchases stock from a manufacturer, it is viewed as pipeline inventory as it is in the course of being transported, provided the payment is made.

It is called pipeline inventory until it reaches the buyer’s warehouse.

It is important to know what is your level of pipeline stock as it enables you to ascertain how much of your money is otherwise engaged in inventory and holding costs etc.

Businesses that deal in products with long lead times; say handmade clothing, for example, have to be especially attentive about pipeline inventory; production may take months if not weeks, and inventory levels are not accurately ascertained by counting stock at hand.

ALSO READ: What is Batch Picking? 

Functions of Pipeline Inventory

Products in the supply chain of a business, that have been paid for and have been shipped, from the pipeline inventory of the buyer.

However, if the buyer hasn’t paid for the goods, they are considered to be the seller’s or manufacturer’s inventory; the moment the payment is made, regardless of whether the buyer has got custody of the products, it becomes the pipeline inventory of the recipient.

Example of Pipeline Inventory

Often it happens that the products stay in the transit pipeline for weeks, or even months together – especially in the case of overseas shipping.

Let’s suppose a shipment of smartphones manufactured in Korea is on its way to Saudi Arabia.

If the buyer has already paid the manufacturer, it is part of their inventory as pipeline stock and remains their inventory till they are sold to the end-users.

A company needs two values to arrive at the pipeline inventory: lead time, and demand rate.

Lead time is the time taken for the goods to arrive at the buyer’s facilities after placing the order.

Demand rate is the quantity of products sold by the same company between two orders.

Once the buyer (wholesaler or retailer) has these two values, pipeline inventory can be easily calculated.

The formula is:

Pipeline Inventory = Demand Rate x Lead Time

Let’s say the lead time.

Let us assume that the same company in KSA – their lead time for this product is of 4 weeks; they place orders once in seven days, and every week they sell 300 Smartphones. Their lead time would be:

4 weeks x 300 units = 1200 Smartphones or level of pipeline stock.

ALSO READ: What is Dead Stock – How Can You Avoid It?

Pipeline Inventory Vs Work in Progress

Pipeline inventory is often mistaken for work-in-progress inventory.

WIP is simply the products of a company that are in various stages of manufacture, and are not complete yet – unlike pipeline inventory which is a ready stock that has been paid for but is still in transit.

While both are part of the inventory, WIP is unfinished goods in the factory, while pipeline inventory refers to goods that have completed the production phase and are in the distribution stage.

ALSO READ: A Detailed Guide to Batch Tracking

Pipeline Stock in Inventory Management

Inventory management can be significantly enhanced by gaining a thorough understanding of the products in transit.

Here forecasting means, making data-based predictions based on a range of factors with regard to order placement.

Organizations that are aware of where exactly and how much quantity of their products are in transit are better placed to forecast demand – or order amount, with the pipeline stock affording clarity with regard to the position of the product within the manufacturing process.

What is Decoupling Inventory?

Decoupling inventory is that stock that is kept aside for emergencies, like a stoppage of production.

It provides a buffer or cushioning that helps to mitigate risks associated with production hitches – especially due to the shortage of a few components.

ALSO READ: Things to Know about Job Costing 

Functions of Decoupling Inventory

The stock kept aside to be used in the event of slowed or paused production due to the non-availability of some components, is called decoupled stock.

It provides a cushion for the inventory of the business against possible production problems.

Often, different lines in the production function at different speeds, and this can cause the production to be halted.

A lot of products remain unfinished (work in progress) and this brings down the inventory stock renewal rate.

Examples of Decoupling Inventory

Let’s continue with the Smartphones example.

It is made up of several small and sensitive components like CPU, GPU, screen, hard drive, ports, and so on.

Let us say that the manufacture of the processor (CPU) slows down for some reason, like machinery breakdown – it can bring the entire production to a stop, as obviously one cannot have a Smartphone without a processor.

If the manufacturer has decoupled inventory of processors, they will still manage to ship the phones on time, while working on speeding up the production of the CPUs.

Decoupled inventory can be either finished goods, components, or batches of raw materials, and this strategy is implemented by many businesses to ensure uninterrupted production.

Manufacturing units that make products in bulk often have numerous holdups in their assembly line which could be caused by internal or external factors, leading to cessation in production, and consequently, delayed shipments.

ALSO READ: What is Negative Inventory and How Can you Prevent it?

Advantages of Decoupling Inventory

By setting aside stocks of components or raw materials, businesses can enjoy the following benefits:

• Neutralize negative effects of changing vendors or systems internally in the business
• Create a cushion for supplementing the expenses required to fix problems without spending out of the profits of your business
• In case of insufficient employees, decoupling inventory provides a safety net
• Buy time to identify and fix machinery and technical issues
• Reduce pressure on internal processes and carry out routine maintenance activities
• Maintain steady output
• Optimizing production lines for parts and/or finished products to meet demand variations
• Improve flexibility and agility and scalability in case of unprecedented delays in supply chain
• Mitigate risks related to procurement, vendors, and external factors not in their control.

Will My Holding Costs Increase with Decoupling in Inventory Management?

It is natural to think that your inventory costs will go up with decoupled inventory, and well, they could – or not, depending on how you approach it.

With intelligent demand forecasting from robust ERP software like Tranquil, and by accurate calculation of your pipeline inventory, you can gain excellent visibility into your inventory turnover and other activities over a period of time.

The analysis of historical sales figures enables companies to plan for seasonal demand fluctuations so that they are not caught unawares.

You could say that by keeping in mind your pipeline inventory and setting aside decoupled inventory, you can easily achieve a good balance between affordability and risk alleviation – an extremely important part of good inventory management and continuous business growth.

ALSO READ: Ways to Improve the Procurement Process

Decoupling Inventory VS Safety Stock

Often, people use the terms safety stock and decoupled inventory interchangeably; while both terms have similar meanings, they are two different functions that serve two different purposes.

We have seen that decoupling inventory aims at preventing production delays or stoppages by having extra stock of components or raw materials – it is meant for meeting unexpected internal demands.

Safety stock, on the other hand, is the extra stock kept aside that is used to meet unexpected demand surges from customers – external demands.

While both provide a safety net to meet sudden demands, one is for internal and the other for external demand.

How Does Decoupling Work in The Supply Chain?

Decoupling in the supply chain works along with two pipelines – informational as well as material flow.

Without decoupling inventory, any issues on the production front can negatively impact supplies to customers, and eventually on further demand.

The change in demand can conversely, also affect suppliers if they are not able to fulfil demands.

Decoupling works within the supply chain to a major extent, by focusing on minimizing downtime, or stoppage time in production.

Implementing manufacturing automation can simplify and streamline the production process.

The various automation tools help in creating more efficient and smoother workflows, regardless of the number of locations your business has.

Some of the features included are production management , inventory management, reporting, order management, shipping, and so on.

ALSO READ: Challenges Facing Purchasing and Supply Management

Differences between Pipeline Inventory and Decoupling Inventory

While both pipeline inventory and decoupling inventory are quite similar, they do have some differences, and they serve two different purposes.

It is essential that you learn how both function, what their benefits to your business are, and how they differ.

Similarities

• Both inventory types aim to improve the efficiency of operations
• They serve to mitigate the risk of not being able to meet demands
• They offer the chance of business continuity in the face of resource shortages
• The basic approach is to make up for lost time
• They include the cost of lost opportunities
• Negate the harmful effect of shortage of supplies
• Churn out precise inventory data
• Deliver clear, effective insights into the analytics of your inventory

ALSO READ: What are Backorders?

Differences

• Decoupling is an internal system, and pipeline inventory is for external implementation
• Pipeline is a standalone inventory system while decoupling is an approach employed to house inventory
• Pipeline inventory is a business process while decoupling inventory is an internal strategy of operations and inventory management used for dealing with possible bottlenecks
• Pipeline is in transit and outside the business whereas decoupled inventory is stored in the premises of the business
• Pipeline inventory is found in almost all businesses but decoupled inventory is likely to be found only in large companies.

Conclusion

Both types of inventories are helpful to maintain business continuity and fulfil customer demands in time. At Tranquil, our robust ERP system has several modules including a feature-rich Inventory Management module that can be customized to meet your specific demands. If you are a manufacturer or retail business that gets components or finished goods from overseas suppliers, you need to think about decoupling inventory and other inventory strategies to enjoy business efficiency and growth.

Do schedule a demo at a date and time of your convenience, and our representatives will walk you through the system so that you gain a thorough understanding of how it can benefit your company. Get in touch with us today!

 

Warehouse managers are always on the lookout to reduce operational expenses while increasing output.

In this, one of the major steps that need optimizing is the batching process. The longer time needed for order fulfillment, the lower the profits on that order.

It is an essential part of inventory management.

What is Batch Picking?

Batching is also called warehouse batching, or batch picking.

It is a methodology that aims to boost the efficiency of picking, as it is an important step in the process of order fulfillment.

It involves grouping several similar orders into a single picking instruction.

Often, a great deal of time is lost by employees spending time picking for one order.

This method can be effectively used to reduce time when there are similar orders from multiple customers.

It reduces employee movement inside the warehouse and speeds up picking.

A single employee retrieves a batch of orders, eliminating the need for repeated trips to the same locations for different orders.

Of course, it’s not feasible to use this method if the order combinations vary to a great extent.

Let us suppose that there are two items in a single order, that are usually ordered together, but are stored far away from each other in the warehouse.

The inventory or at least part of it can be moved so that both items are closer to each other, and eliminate walking up and down unnecessarily.

ALSO READ: Important ERP Modules and Functions

How Batch Picking Works

When you get orders from customers, the items have to pick from a warehouse; rather than assign a single order at a time to one picker, multiple orders with the same items are assigned. Let us now see the main steps involved in batching:

1. Creating Picking Lists for Every Order

A picking list contains the detail of items ordered by a customer, like the quantity, SKU, and location in the warehouse.

When there are similar picking lists, batch picking works perfectly.

The picker has a bunch of picking lists that contain orders from various customers.

Though earlier lists were printed, today warehouses leverage technology and mobile or wearable devices for picking and order fulfillment.

A consolidated list is churned out by the software, simplifying the entire process.

ALSO READ: What is Negative Inventory?

2. Grouping Orders by Same Items

The picker groups orders with exactly the same items in a batch.

With an order or warehouse management software, they can automate this task.

3. Assigning Batches to Pickers

The software generates batch pick lists for every employee so that they can pick items efficiently; in the absence of software, you will need to draw up the optimal route for every picker so that they can retrieve all the SKUs in minimal time.

Some items may require equipment or tools to be picked – like if they are large, or stored at a height, a forklift; otherwise, carts, trolleys, mobile scanners, and so on are used.

4. Picking Items in the Order

Pickers need to stick to the recommended route as per the picking list so that they don’t waste any time.

Each warehouse may have different batching rules; some have several totes in one cart for separate orders, while others may just gather all the SKUs into a single bin, which is then sorted later.

Whatever the method used, pickers follow their lists according to the path and concentrate on one SKU at a time.

Mobile scanners help to track items picked and their quantities.

After the SKUs have been picked for specific batch orders, they can be handed over to packers, and the pickers can start on the next batch of picking lists.

ALSO READ: ERP software in Warehouse & Fixed Asset Management

5. Packing and Shipping

If the picking method is gathering everything into one bin, sorters will first sort the items as per the orders, and then hand them over to packers.

Once packed properly, the orders are sent to the shipping department. Pickers start on their next batch of picking, and the entire cycle repeats.

Top Advantages of Batch Picking

Batch picking aims to reduce the footsteps warehouse employees take to retrieving items for orders; to manage your supply chain and fulfillment centre successfully, it is imperative that you boost efficiency in picking.

1. Less Foot Travel for Pickers

Warehouses are usually huge and walking to and can be very time-consuming.

When pickers have to pick items from numerous locations all far from each other, order fulfillment becomes slow.

Thanks to batching, operations can be centralized, reduced travel, and complete several tasks simultaneously.

For example, there could be 10 similar orders; when batched together, pickers need to go to that zone just once instead of 10 times.

2. Increase Picking Speed

Rapid order fulfillment is crucial if you want to conduct warehouse operations successfully.

Batch picking reduces the time and distances your employees have to move inside the warehouse, and so are able to complete their tasks quicker, increasing productivity decreasing the average time needed to fulfill a single order.

ALSO READ: What is Cross-Docking and How Does it Work? 

3. Reduced Costs

As productivity increases, you need less man-hours for picking, and hardly any overtime, which means a reduction in labor costs.

4. Avoid Crowding and Reduce Fatigue

Batching can help avoid your employees crowding in a zone, as each employee is assigned separate zones.

It also helps reduce the fatigue of your employees as they have to walk less.

Zone Picking vs. Batch Picking vs. Pick-To-Order vs Wave Picking

Each of these techniques has its own advantages and disadvantages.

Pick to order is usually followed in small businesses with a low volume of orders, and you have to send out orders in time.

When you have only a few items, or your entire inventory fits in a small storage area, your pickers won’t have to walk a lot to retrieve each item on the picklist. Often, the picker also packs the order in such a firm.

Warehouse managers schedule windows for picking called waves throughout the day – this is wave picking.

Orders are fulfilled depending on the items in the list so that several orders can be filled simultaneously.

It is somewhat similar to batch picking.

ALSO READ: What is Dead Stock – How Can You Avoid It?

Zone picking is used by large businesses that deal with a high number of SKUs, and have their own warehouse and software to group similar orders together and figure out storage locations and proximities.

Here several pickers retrieve different products in the same order.

Let’s say the order has 6 items in it, with each item in far-flung sections.

Here, you can assign various pickers to each section so that the order is completed quickly.

Ergo, one employee doesn’t have to cover multiple areas.

Zone picking does not require that there be multiple orders with similar items.

While it does increase efficiency, it can be tough to ensure even workload distribution.

We have already seen what batch picking is – grouping multiple orders with similar items so that pickers don’t have to walk much.

This method is ideal for large companies with multiple or very large warehouse facilities.

What Are the Two Different Strategies for Batching Orders?

There are two main batching strategies.

Let us examine both of them.

1. FIFO or First in First Out

This is the traditional method followed in most warehouses, where a picker is sent along a circuitous path to retrieve the items in an order.

It does not consider the travel distance, fatigue, crowding, or speed of execution.

Order 1 is batched with Order 2 – the first in first out sequence of the conventional batching algorithm.

This is still better than the old method of discrete picking – picking one order at a time, but still not at the desired level.

ALSO READ:  Ways to Improve the Procurement Process

2. AI-Based Intelligent Batch Picking

This is used in modern warehouses that use technology; it uses algorithms based on artificial intelligence, to create optimized order batches, and hence it is also called intelligent batching.

The software gathers data about inventory, its location, orders, and so on, and optimizes the data in real-time to churn out batch assignments.

It takes into consideration matters like priority of orders, travel time and distance, pick locations, attributes of products, and so on to generate optimized batches.

The software goes through millions of combinations to figure out the best batching combination from the orders received.

To Sum Up

To ensure maximum benefits from batching or batch picking, you need to consider investing in sophisticated work execution systems and warehousing so that you can optimize the batching. Businesses that implement this batching method find significant improvements in productivity, reduction in costs, and faster order fulfillment, without making drastic layout changes in the warehouse, or making huge investments in robotics and automation.

Are you operating a warehouse for your eCommerce business? Are you a big company dealing with a large number of products? If yes, then it is time you moved on to batch picking and implemented the right software to ensure optimal operations in your warehouse.

At Tranquil, we have the right solution for you. Our ERP system is not just robust, but also flexible, and it can be tweaked and scaled to fit the unique requirements of specific businesses. Our ERP has a powerful inventory management system that can greatly benefit your business by helping you with automated and optimized batching and picking processes.

If you are unsure how it works, schedule a demo at a time of your convenience, and our team will explain how the software can help boost productivity and increase your revenues. Our experts will be at hand to answer any questions you have regarding the software.

 

It is extremely important for any business to hold sufficient inventory to be able to fulfil customer demands, and bring in revenues; in fact, a business must have adequate inventory to meet the projected demand and have a buffer of extra stock so that unforeseen problems like delayed deliveries by vendors or sudden demand surges can be handled.

Cycle stock is a critical element of inventory management.

It is essential that you understand cycle stock inventory and the quantity required to have on hand over a specific time will allow you to fulfil customer demands without increasing costs.

ALSO READ: Tips For Efficient Stocktaking 

What Is Cycle Stock?

Cycle stock is the quantity of inventory that is available to fulfil the usual demand in a given time and is also called working inventory.

This is the inventory level you normally expect to have after checking both historical data and forecasts.

It is just a part of your total inventory on hand and will have to be replaced as your products get sold.

Safety Stock Vs Cycle Stock

Both basically differ depending on the expected use for each inventory type.

While cycle stock refers to the inventory set aside to fulfil normal customer demand in a given time period, safety stock is akin to your backup, or buffer inventory.

It is the stock of products maintained in your warehouse to meet unforeseen demand spikes, delayed or inadequate production, and so on.

Let’s say that you run a massive campaign for the festival season, and it is hugely successful.

Your company has bumper sales, far outperforming the sales of the previous year, and the current projection by a huge margin.

It is highly likely that your cycle stock will be quickly depleted; you will then have to fall back on your safety stock.

In the absence of that buffer you keep for just these kinds of events, you will likely lose potential sales and customers – who may not give you another chance and take their business elsewhere for good.

But in case the forecast of sales is bang on, or unfortunately, the customer demand is not as per the forecasted sales, you can meet it from your regular cycle stock.

This is why deciding the ideal cycle stock is a dicey thing.

It’s a balancing act that companies have to do – overstocking can cause its own share of problems.

The formula for cycle stock calculation is simple: Total inventory on hand – Safety stock = Cycle stock.

ALSO READ: What is Negative Inventory?

What is the Importance of Cycle Stock in Business?

Cycle stock is crucial in a business, as it is used to ensure sales orders are completed.

Without sufficient inventory to fulfil customer demands, a business is likely to fail; customers today are demanding, and not willing to go back to any business where they don’t get a good experience the first time.

Having adequate stock on hand is important for cash flow generation because cash comes in when a business sells products and gets the money.

The goods that get sold have to be replenished, and so the company places orders with different vendors, using the cash from the cycle stock sales to make payments.

Managing Cycle Stock Inventory

This task becomes easier once you have historical sales data to check and are able to pick out sales trends, as well as make accurate forecasts.

Once you get this right, you can make sure that you have the right inventory available and replenished in time to keep the business flow smooth.

In the initial stages of the business, it can be difficult to predict the cycle stock level you may require – there is no historical data to depend on!

In such cases, consult business experts so that you get a clear picture, check out what the competition is doing, and make educated guesses about the seasonal demands, the effect of promotions, and check current market trends to arrive at a figure.

When you have sufficient historical information to work with, you can create demand forecasts that are more in-depth and dependable.

You will begin to get an idea of sales fluctuations in the year, which products sell quickly and which are slow, and so on.

Inventory management modules which are part of robust ERP solutions like Tranquil can be very valuable, as they can make accurate sales forecasts with the help of seasonality, trends, historical data and additional factors.

The main point is that you need to have sufficient cycle stock so that it will last till you receive the new purchase order at the store, factory, or warehouse.

Generally, the time gap between order receipts or between two manufacturing runs (in factories) is considered as the time period to calculate the cycle stock.

In an ideal situation, you would have sold almost all of the cycle stock, before new stocks arrive from the vendor or from your plant.

ALSO READ: ERP software in Warehouse & Fixed Asset Management

Benefits of Forecasting Cycle Stock

Forecasts are the base on which the right quantity of cycle stock to have, is determined.

These are the main benefits you get from forecasting:

1. Optimize Revenue

When you receive payment for goods sold, you get the money to buy new raw materials or products, and meet your other expenses; the greater the sales of cycle stock, the more the revenue generation, and the more the business growth.

2. Fulfil Customer Demand

Cycle stock helps a business to meet the customer demands immediately, and without this stock, you can lose sales, and end up with unhappy customers, which impacts their loyalty.

They will simply look for another brand, or store with similar products.

With proper forecasting of cycle sales, you will have fewer lost sales

ALSO READ: VAN Sales and Route Sales

3. Save Costs

While lower inventory means lower carrying costs, being stocked out can lead to even more expensive with urgent shipping and rush order fees for sudden reordering.

4. Business Performance Insights

How your cycle stock levels change over time can indicate how well or otherwise your business is performing, as it is a direct reflection of sales.

If the cycle stock is progressively increasing, it means the customer demand is high for that product; if the cycle stock levels decrease, then the opposite is true.

5. Lower Inventory Costs

Forecasts also make sure that you don’t overstock on inventory, thereby saving you from spending high amounts on carrying costs.

When you have the ideal quantity, you will sell them in a decent amount of time, and get in fresh goods.

ALSO READ: How ERP Can Improve Business Efficiency?

6. Conserve Safety Stock

Without adequate cycle stock, you will go through your safety stock regularly and this is not a good sign for a business; safety stock is only to be used for major events, like unprecedented demands, natural disasters, supplier shut down and so on.

7. Avoid Emergency Purchases

If you keep getting stock out of certain products you will rush to purchase additional products from your vendors, and you may have to pay a lot more to get them to your facility quickly – rush shipments always cost more.

You may have to find other vendors who supply the same products but they may charge you more.

This can be avoided with forecasts.

ALSO READ: Challenges in Procurement and Supply Chain

Cycle Stock Inventory Accounting

Cycle stock brings in revenues, and hence cash into the business, and this is a most important feature.

A company’s inventory is an asset, and so is mentioned in the balance sheet.

Companies use different methods to determine COGS or the cost of goods sold for inventory.

The method of inventory costing you select can impact the COGS as prices keep varying, and hence the gross profit is also impacted.

Here are some common methods:

• FIFO or First In First Out: The inventory cost depends on the price of the oldest items purchased
• LIFO or Last In First Out: The cost depends on the price of the latest items purchased
• WAC or Weighted Average Cost: this method just uses the average purchase price of all the inventory sold.

ALSO READ: Benefits of ERP in Accounting and Financial Management

Calculating Cycle Stock with EOQ

Now we come to the issue of how to calculate the size of the cycle stock order.

Most businesses use the EOQ or economic order quantity formula, which enables businesses to order sufficient stocks to fulfil demand while keeping the per-order costs low.

You have to think about the cost of ordering, holding, and the demand for the product when you calculate EOQ.

Q = √ (2 x D x S / H) This is the formula for the calculation, where Q is the quantity per order, D is the annual demand, S is the cost of the purchase, and H is the holding cost for a unit

ALSO READ: What is Job Costing?

Cycle Stock Inventory in Supply Chain Management

Cycle stock comprises a major part of the complete supply chain management strategy of a business. Having an optimal inventory level available includes ordering with the right vendors at the appropriate time, and allowing for the speed at which you can sell products.

It can be very complicated to arrive at the best way to ensure your strategy succeeds.

No wonder businesses focus a lot on SCM nowadays.

Let us say that your cycle stock requirement goes up to 2000 from 1000 because of a successful marketing promotion you ran; your current vendor may not be capable of supplying the extra 1000 units, so now you have to find another vendor who can.

What if the projection is that this year a particular item will sell 3x more than the previous year, and you can see a steady increase in the demand for that product?

You not only have to find vendors who will be able to supply the product, you have to check if your shipping and delivery partners are able to handle that kind of volume; if they can, will they offer lower rates?

If they cannot, you may have to find additional shippers.

So, you can see that it’s complicated, and you need to consider all of these factors to track cycle stock and make adjustments.

ALSO READ: Comparison of Sales Orders and Purchase Orders

Are you unsure of how to keep track of your inventory properly and how you can calculate your safety stock and cycle stock properly? The Inventory management module in Tranquil ERP can do all this and more. It is integrated with other modules that help you streamline the functions of purchase management, finance management, HR, and more. Do schedule a demo with us to see for yourself how it works and our team will be there to explain how it benefits your business.

 

The supply chain in modern business is of prime importance for a variety of reasons.

For businesses to succeed, they need their supply chain to be agile, quick, and productive.

One of the strategies that can be implemented by organizations to gain a competitive edge, is cross docking.

If followed correctly and in the correct circumstances, it can increase efficiency and reduce the time taken for handling.

ALSO READ: Ways to Improve the Procurement Process

What Is Cross-Docking?

The storage component is effectively removed in the supply chain when cross-docking is implemented.

Cross docking in supply chain is a procedure whereby products from the manufacturing facility or supplier warehouse straight to a retail chain or customer, with the goods spending hardly any time lying in the warehouse.

Cross docking happens in a docking terminal; here there are trucks and dock doors on inbound and outbound sides with nominal space for storage.

Products are unloaded from trucks or trains and almost immediately loaded onto trucks or trains, headed for the end-user: the retail store/chain or customers.

If many shipments are headed for the same destination, fewer transport vehicles will be required; large shipments can be put in smaller groups.

In both cases, you have a more efficient and leaner supply chain.

The term cross docking refers to the process where goods are received via the inbound dock and sent across to the outbound dock.

ALSO READ: Guide on ERP Software in Warehouse 

How Does Cross Docking Work?

To put it simply, goods come via trucks or trains and are assigned to the inbound side of the cross dock terminal at the receiving or incoming dock.

After docking the inbound transport, the goods can be sent to the outbound destinations directly or indirectly.

Employees may unload, sort, and examine the goods to determine their destinations, and after that, these goods are sent to the outbound cross dock terminal.

Conveyor belts, forklifts, pallet trucks, etc. are generally used to move them to the outbound dock.

There they are loaded onto trucks or trains and sent off on their way to the customers.

While it’s not a complex process, it’s not very easy either.

The process has to be carried out in an organized and precise manner.

You can decide which products you want to handle the traditional way, and which ones you want to cross dock.

You can be in full control if you own the cross docking warehouse as well.

If your warehousing and shipping is outsourced, you can discuss cross docking implementation with your provider.

ALSO READ: What is Dead Stock?

Cross Docking vs. Drop Shipping

It is important to distinguish between cross docking and drop shipping.

Both are methods that help you prevent inventory from lying in your warehouses.

In dropshipping, the items are sold directly from your supplier to your customer, and you don’t come into the picture – you merely facilitate the sale.

In cross-docking, the products are first sent to your warehouse, where it is sorted and repacked, and sent out immediately to your customers.

Dropshipping is immensely popular as no inventory holding cost or physical counts are incurred by anyone.

Pre-Distribution vs. Post-Distribution Cross-Docking

There are two main types of cross docking – pre-distribution, and post-distribution.

In pre-distribution, the customer is known or identified before the products are released by the supplier, and after the goods are received at the inbound dock, they are organized and repacked as per instructions received beforehand.

In post-distribution, the goods are sorted at the facility or warehouse, customers are determined at the cross-docking facility, depending on demand.

In this method, the products may stay a little longer in the facility; however, it is beneficial from the sellers’ viewpoint as they are able to make more informed choices about the destination for their goods based on sales forecasts, inventory in stores, POS trends, etc.

ALSO READ: How Does Landed Cost Affect the Cost of Inventory?

When is Cross-Docking Used?

Cross docking does help in having a leaner supply chain, but it may not be suitable for every business or warehouse.

It is essential that you study the costs, productivity factors, how satisfied or not your customers are, and how it will change for your business before you make a decision.

Cross docking is especially useful for products with temperature control, perishables, goods that are already sorted and packed, and so on.

Here you can speed up the supply chain and distribution process and make it more efficient with cross docking.

Cross docking is particularly useful for businesses with high inventory turnover rates, like pharmaceuticals, fashion industry, food,

Why is Cross Docking used?

• It offers a centralized place for the sorting of products, and for the combination of similar products that have to be shipped and delivered to several destinations quickly and efficiently
• You can consolidate multiple small loads of goods into a single transportation method and reduce expenses
• Large product loads can be broken down into small loads to be transported easily to customers

ALSO READ: What are Backorders and How to Manage or Avoid Them?

Advantages of Cross Docking

• Storage space requirements can be reduced, leading to overall savings in costs. Precious warehouse space can be utilized for products that simply need to be stored before they can be sold or sent to the customers.
• Storing, handling, counting, securing, and insuring inventory costs money; you also lose money when products get damaged, lost, or stolen. Cross-docking eliminates these expenses as the goods are immediately sent to outbound transport with minimal holding time. The reduction in cost is one of the biggest benefits of cross docking.
• As they are hardly stored and handled minimally at the warehouse, there is very little risk of your products getting spoilt or damaged, leading to better quality products. Basically, your products are taken from one truck and put into another, with no stock being stored for a certain amount of time. The only time the products will spend at your cross docking warehouse is when they are waiting for the outbound truck to arrive so they can be loaded on it.

ALSO READ: Top Tips For Efficient Stocktaking

• As the goods are immediately sent out once received, it significantly reduces the time taken for delivery of those items to the customer. Cross docking ensures a speedy distribution process, and higher efficiency and significantly reduces lead time.
• Labor costs are reduced as there is no longer any need to pick and put away stock; this means you need fewer workers at the warehouse.
• The cross docking process eliminates the worry about the dead stock; as your products are immediately scanned and shipped, there is no danger of them becoming obsolete; you also don’t have to worry about re-ordering, or items getting stocked out.
• As customers receive their orders quickly, you can ensure higher customer satisfaction; this, in turn, helps to boost your reputation for quick deliveries.
• When your loading and unloading systems are simplified and streamlined, and you achieve quick movement of goods from inbound trucks to outbound, you can ensure speedy shipments, giving you an edge over your competitors.

Disadvantages of Cross Docking

Like everything else, while cross-docking offers several benefits, it does have its drawbacks. Let’s see what they are:

• The preparation can be very time-consuming; it has to be planned and executed meticulously to ensure its success. Otherwise, you may have scheduling conflicts on your hands and have accidents because you have no proper systems in place for warehouse management. Ideally, in the cross docking process, shipments should not spend over 24 hours in the cross-docking warehouse or distribution facility.
• It takes a pretty hefty investment to set up a cross docking operation; you need dock terminals, and a sizeable fleet of trucks and other transport vehicles to handle the cross docking operation. You will also need space to park your vehicles when they are not running.
• Cross-docking is a very precise operation and it requires quick, efficient workers, smooth and seamless workflows, and sophisticated technology for it to be successful. It may be necessary to have an EDI or electronic data interchange for streamlining the purchase process and supply chain management software to efficiently track your products from suppliers to your docks right up to your customers.
• You need to purchase forklifts, conveyor belts, pallet trucks, and other equipment to ensure smooth and fast operations.

ALSO READ: Comparison of Sales Orders and Purchase Orders

• Multiple deliveries are often handled in a single day, and therefore it is vital that all the goods have to be unloaded from the inbound trucks and loaded onto the outbound trucks swiftly, within tight time schedules. If you are not able to do that, it will lead to congestion in the dock, and may even cause some of the goods to get damaged, stolen, or lost.
• It is not suitable for industries with low inventory turnover rates; examples – furniture, office stationery, etc.
• Your suppliers may not always be able to comply with the stringent deadlines that cross docking necessitates. There is no room for mistakes in either lead times or product quality; therefore you need to ensure that your suppliers are reliable and capable of meeting your requirements.

Is Cross-Docking Right For Me?

We have seen the pros and cons of cross-docking above, and from that, we can conclude that for cross-docking to work and give you the benefits you need, you need to streamline your transport, unloading, and loading processes, have sophisticated tech, a high inventory turnover rate, and be very organized and precise.

If you have the capability to do this, or you have a reliable third-party logistics company that can provide this facility, then you will definitely benefit from cross docking.

But in the event you are not able to do so, a traditional warehouse approach may be the best bet for you.

ALSO READ: A Detailed Guide to Batch Tracking

What You Need if You’re Not Cross Docking

If cross-docking is not suitable for your business and your products, then, of course, you need to go the traditional method of stocking goods in your warehouse till they are sold.

It would be wise in such a case to invest in a robust inventory management system with other integrated tools that will help you run your business effectively and spur your growth onwards.

Tranquil ERP is a cloud-based inventory system that will help you do this and a whole lot more.

You can streamline all your processes like procurement, manufacturing, finance, HR and payroll, along with inventory management.

You can get real-time data about inventory levels, generate reports for better forecasting, and even configure the system to send out orders automatically when stocks become low.

Unsure of how it will help your business? Schedule a demo with us to know more. Our team will be present to answer all your queries.

 

Inventory management is a complex but crucial component of running a successful business. It is essential to know how much inventory you have on hand, and how much you need to order so that production or sale is not interrupted.

You should always have the right amount of inventory – too much could mean more expense, or the danger of stocks remaining unsold.

Not only does it occupy warehouse space unnecessarily, but it can also pose a danger to your viability.

What Is Dead Stock?

The inventory that is lying in your warehouse unsold, and with no possibility of being sold because it has become obsolete, or out of vogue, is called dead stock, or dead inventory or obsolete inventory.

ALSO READ: Tips For Efficient Stocktaking

Dead Stock Explained

Inventory that cannot be sold the usual way is dead stock; dead stock inventory occurs because you may have ordered or manufactured more items than what you managed to sell.

Wrong deliveries, damaged products, raw materials that have expired, and leftover seasonal items, all form part of dead stock.

Perishable items like food and medicines, become dead stock very quickly as they have to use within a short time.

Products returned by customers are not considered dead stock.

Of course, nobody expects their entire stock to be sold in a day or two (other than perishables) so when do we deem inventory as dead?

The process takes some time.

Initially, they may be tagged as slow-moving inventory, and if they stay unsold, they may be labeled as excess, and then as dead stock.

In most cases, inventory that remains unsold for a year is usually categorized as dead stock, especially in accounting – and this is a liability.

ALSO READ: Detailed Guide to Batch Tracking

Why Is Dead Stock Bad for Business?

Holding inventory in warehouses costs money; the longer it stays there, the more the expense – plus it takes up space you could have used to store fast-moving stock; it represents an investment on which you have not got returns as well.

Let’s visit these factors in some detail:

• Money spent on inventory is got back only when products are sold; dead stock means that investment is gone. Ergo, dead stock represents lost money.
• Storing inventory costs money in the form of labor, storage space, insurance, and so on; the more money a business has tied up in inventory, the less it has for other purposes.
• The more stock that is lying in the warehouse, the higher the effort needed to manage inventory. You need more employee hours to count, shuffle, rearrange, and dispose of the stock – and all for items that may not even bring in the money you paid even in the initial stage.
• Even if dead stock is sold, it is sold at a small fraction of the cost, so the opportunity to make a profit, or even get back your original investment, is gone. What’s more, you spend a lot more later in taking care of it, so eventually, not only do you lose money on those items, you miss the opportunity of making profits on high-selling products.
• Precious inventory space that could have been used for stocking quick-selling products is tied up in storing slow-moving stock that ends up as dead inventory.

Cost of Dead Stock

Loss of revenue is, of course, the most obvious cost of dead stock.

Let’s say a business has 500 units of product lying unsold, costing SAR 60 each, in theory, the business is set to lose SAR 30,000.

Of course, it doesn’t end there – there are other costs that could be much more, but they cannot be quantified easily.

Carrying or inventory holding costs can cause roughly 25% of a company’s capital at any time, but it is not easy to define how much of it is caused by dead stock.

Of course, the more time it takes for an item to be sold, the more the carrying costs for that item – hence, dead stock is a nightmarish situation for holding costs.

Then there is the opportunity cost – the lack of storage space could mean not being able to bring in fast-selling stock, that could have brought in revenues.

ALSO READ: How Does Landed Cost Affect the Cost of Inventory?

What Causes Dead Stock? And How to Avoid It?

Regardless of how well you manage your inventory, you may still find yourself stuck with some amount of dead stock.

Let’s see the most common reasons for businesses to find themselves in this situation, how they can avoid it and how to reduce dead stock.

1. Erroneous Forecasting

Sure, it isn’t always possible to forecast perfectly; external factors, incorrect data, and unrealistic expectations can lead to incorrect forecasts with the businesses predicting demand wrongly and ending up with excess inventory.

This is one of the most common reasons.

This can be avoided by using different strategies to enhance the accuracy of forecasts, like studying order history to get a clearer picture about demand, monitoring activities of the competition, and considering the economic situation.

Also, consider investing in a robust ERP like Tranquil that offers an impeccable inventory management module that can pick out patterns and forecast better.

ALSO READ: Factors for a Successful ERP Implementation

2. Erratic Ordering Practices

Excess inventory can occur if you order too much or at the wrong time.

By consistently tracking inventory metrics relevant to your business, you can avoid this situation.

It can help you to reorder inventory at the right time, and in the right amounts. Important metrics:

• Reorder point formula – the minimum quantity a stock reaches before re-ordering. The formula is average daily use rate x lead time for order, plus safety stock.
• Inventory turnover ratio – how long does it take to sell inventory? That’s the focus here; it’s calculated as how many times inventory is sold and replaced over a certain period.
• High SKU count – how much variety should you offer? Too low and your customer base could be low; too high, and you have that much more to manage, track, and sell.

Your SKU count is likely to increase as your business grows, so it may not be possible to avoid it entirely; however, you can evaluate them to identify the quick selling and slow-selling ones, and then make sure you start stocking less of them.

ALSO READ: How ERP Software is Playing Role to Improve Business Productivity?

3. Poor Sales

This may happen due to any number of reasons – obsolescence, high prices, not being a fit to the customer’s needs, high competition from products of other businesses, and so on.

When digital cameras made their appearance, film cameras, and along with it, film, became obsolete; as did darkroom studios.

Nobody could have predicted this innovation. Thousands of cameras and cartons of the film became dead stock almost overnight.

To avoid this, you need to know clearly what the exact reason is; be more customer-focused, adjust your pricing, and improve your inventory management.

You can also change your marketing strategy and tailor the messaging to specifically appeal to your target market. Run contests, give early bird prizes, discounts, and so on to hike sales.

4. Drop-in Demand

Even with impeccable forecasting capabilities, you may face unforeseen plummets in demand due to volatility in the market, or the general state of the economy, like lockdowns caused by the pandemic, war situations, and so on.

It’s not easy to handle external factors, not in your control; all you can do is soften the blow by implementing effective inventory management practices that decrease excess ordering and making plans to deal with the low demand situation.

If you have an agile supply chain and good visibility into it, you will be able to make faster adjustments.

ALSO READ: What is Negative Inventory?

5. Issues with Quality

Products that are not up to expected standards are likely to remain unsold because customers simply won’t accept subpar items.

This can be easily avoided by ensuring you set stringent QA measures for both raw materials and products before they come to your warehouse, and during manufacturing too.

Be definite about the specifications of products, and packaging essentials, and set AQL or acceptable quality limit standards.

• Scrutinize all items as they come in, and if anything is not as per the specifications, reject those, and don’t risk trying to sell items of poor quality.
• The AQL is a ratio of the number of defective items to total sampled items. It is used to decide the point at which an item does not meet the expected level of quality.

6. Poor Customer Interest

You will definitely have dead stock on your hands if the customers are not interested in your product.

Market research and feasibility studies are extremely important before you invest in a certain product.

You need to be absolutely in tune with customer expectations and needs before you leap into a business.

ALSO READ: What are Backorders?

How To Manage Dead Stock?

It is possible that in spite of all the measures you take to avoid it, you may still end up with unsold stock; it is pretty common in a business. So now we’ll take a quick look at dead stock inventory management:

1. Offer Dead Stock in Bundles /or as a GWP

Be ready to act when the dead stock shows up in your system and warehouse.

This is easier for smaller businesses to implement as well.

Bundle your dead stock into a cheaper, packaged item so that you can get them off your shelves, and also get some of your investment back so that it’s not a complete loss.

Another strategy to get some value out of your dead stock is to give it away as ‘Gift with Purchase’.

Like, when you purchase a bottle of expensive coffee, you get a pair of coffee mugs free. (They probably have images from the Harry Potter movies over a decade ago, but hey they are free!); or it could be a branded handbag free on the purchase of expansive make up for a certain amount.

That particular style of handbag may no longer be popular with shoppers – but everybody is happy to get something for free.

Of course, the GWP has to complement the items your customer purchases; for example, gifting a handbag on the purchase of the latest Xbox makes no sense at all! This is perhaps one of the best methods of dead stock management you can implement.

2. Discount it

Have a clearance sale where you sell your dead stock for a much lower price than what it was original; there are likely to be a lot of people who liked it but could not buy the item because of its price.

They will be more than happy to take it off your shelf.

ALSO READ: Different Ways to Improve the Procurement Process

3. Donate it

When there is no other option in sight or none of the above work, donate it to a worthy charity so that you can bring smiles to someone in need.

There are numerous charities that work all over the world that will be happy to accept your dead stock in a donation.

Tranquil is an effective and robust ERP solution with modules that help not only with inventory management but also with procurement, production, sales, HR, etc. Schedule a demo with us to know how our software can help fast-track your business growth.

 

What is Stock Taking?

Stocktaking is simply the counting of every single product you sell and categorizing them item-wise.

For example, a textile manufacturer or trader will categorize products something like this: shirts, jeans, t-shirts, dresses, children’s clothing, etc.

Once the counting is done, the usual procedure is to verify the count by comparing it with the inventory as shown in the computer system.

It is required to be performed for the annual audit of a company or store, and often as a periodic inventory checking.

To put it in short, stock-taking generates a document which is a summary of the different inventory items with their quantities as on a particular date.

Stocktaking is pretty labor-intensive, and time-consuming too, so companies put it off as much as they can.

You need to remember that while both stock and inventory are used interchangeably, there is a difference; inventory includes everything like your raw materials, finished products, accessories, packaging, office stationery, and so on.

Stock, however, refers only to the finished products that you actually sell in your business.

ALSO READ: A Detailed Guide to Batch Tracking

What is Cycle Counting?

In cycle counting, a specific portion of your inventory is checked on specific days, rather than taking one single count in a year of your entire stock.

This process breaks the stocktaking down to multiple small stocktaking activities.

This offers a few advantages over conventional stocktaking; the biggest one is avoiding the disruption associated with company-wide annual counting.

Therefore, cycle counting is preferred by large businesses that are unable to completely close down their operations.

It also helps to eliminate big variations in actual and system count – which happens when stocktaking happens after a long gap.

But you need to bear in mind that this is a complicated process that depends on accurate inventory systems to work properly.

Many businesses rely on a hybrid system – a mix of cycle counting and traditional stocktaking, till they are absolutely sure that moving away from the conventional system will not cause them any problems later.

ALSO READ : Job Costing – Everything You Wanted to Know About

Why is Inventory Stocktaking Important?

Any business that deals in products must ensure that their stock levels are absolutely accurate every now and then as part of inventory control – in certain countries, it is part of regulatory compliance.

Here are three main reasons you must regularly check your stock:

1. Determine How Efficient your Inventory Tracking is

Complete dependence on the software system for stock level accuracy is not a good idea.

Physically taking stock allows you to check the accuracy by comparing your count with the system figure.

This helps you to recognize the anomalies and resolve them before they become big problems.

If the tracking of your goods isn’t as proper as you believed. If you don’t resolve issues early, you may face problems like:

• Overstocking – having too many products on hand
• Stockouts – having no products to sell
• Deadstock – products becoming obsolete and lying unsold

ALSO READ: How Does Landed Cost Affect the Cost of Inventory?

2. Identify Stock Problems

Robust cloud ERP like Tranquil has an efficient inventory module that helps you to track the levels and locations of your products, but you still need to perform manual checks to identify transit problems and so on.

Stocktaking helps to identify problems that the software may miss, like missing orders.

3. Ensure you Meet Targets

It is never a good idea to leave anything to chance when it comes to monitoring business performance.

For example, to calculate inventory turnover and other important key metrics, you need figures that are 100% accurate.

You can easily tweak your plans and procedures to enhance efficiency and boost profitability when you are sure about your inventory performance.

For instance, you could:

• Decrease the safety stock level you keep with you for emergencies or demand surges
• Change product prices to ensure a quick sale of products

Stocktaking and Your Inventory System

The importance of stocktaking and the extent of disruption caused by the activity in your business depends on the inventory system you employ.

Where the period system is followed, there is total reliance on stocktaking to have visibility regarding current levels.

Recording stock could mean closing the business for a day or two or paying staff overtime to work after hours.

Cyclic counting however can render the process less disruptive.

ALSO READ: Route and Van Sales

How to Perform Stocktaking?

Any business that does stocktaking should follow certain steps.  Let’s see what they are:

Before Starting to Count

• Fix a date and time – and inform customers, vendors, etc., so that you can close down for that day. Also, fix a day to deal with the discrepancies if any.
• Assign roles and responsibilities to employees and review the process so there is no confusion on that day; assign each employee or set of employees to specific categories. Allocate more staff members to the larger categories.
• No sales or purchases should be done on that day; otherwise, your entire stocktaking will turn up erroneous results
• Any products sold but not delivered to customers should be set aside and not left on the shelves to be counted
• Clear an area where you will do the actual counting work to avoid confusion and chaos; organize products by categories, and move them to be grouped together with similar products if necessary.
• Print out stock sheets to record the counts; your software system should allow you to do that.

During The Count

• Count everything, even if it’s going to be cumbersome; your stock should also contain work-in-progress, cycle stock, buffer stock, and so on. Don’t engage in guesswork – that could be dangerous.
• Record what is actually on your shelves, whether in warehouses or stores, and write that number next to the figure as per your software system
• This is tiring work, so make sure everyone has sufficient breaks. Working continuously can also cause them to make mistakes as fatigue sets in. Planned breaks will help everything go smoothly.
• For a business with multiple locations or warehouses, you must make sure that you are tracking stock transfers accurately.

ALSO READ: What is Negative Inventory?

On Completion Of Counting

The inventory stocktake process does not end with counting everything you have.

To get the complete benefit of your work, you need to do the following:

• Make sure everything is valued correctly, and assess its worth. Check your figures after this, to determine if everything is correct and accounted for. Once you have thoroughly checked everything, you can then update your system.
• Reorder items that are close to being stocked out, and evaluate your stocktaking results. check for any discrepancies, and note down all of them, no matter how small.

Dealing With Stock Discrepancies

A discrepancy is not good news, as there could be an underlying bigger problem in your inventory management, which might blow up and be disastrous if not resolved.

Also, it would mean your business is operating with false data.

The first thing to do is find out the cause of the discrepancy – it could be as simple as incorrect data entry, wrongly-placed items, or something major like theft or supply problems.

When you know the cause, you can take measures to prevent it from happening again; this may necessitate a change in processes, more security, or better software.

Once you have rectified the issue, just upload the new figure to the system.

ALSO READ: Challenges Facing Purchasing and Supply Management

How Can you Improve your Inventory Management?

Inventory is the lifeblood of any business, and you need to ensure you manage it properly.

It’s a good idea to think about how you can improve the stocktaking process first, and a few other steps to make sure you make your inventory management better on the whole.

How Often Should you Take Stock?

This should be a chief consideration when selecting an inventory management system; the answer depends on your business, how complex your inventory is, do you use cycle counting, and several external factors too.

The frequency could be:

• Periodic – Stocktaking may be performed monthly, quarterly, half-yearly, or even weekly
• Annual – Suitable for non-perishable inexpensive items; this is a huge task however
• Continuous – Ideal for larger businesses, and those dealing in perishable items; for example in restaurants and food manufacturing units, daily, weekly or monthly stocktaking is done and stock records are updated continuously.

Here are some things you need to remember that could help you decide how frequently you should do stocktaking:

• How accurate is your inventory tracking? – more efficient inventory tracking necessitates fewer counts
• How important is accuracy for you? If you deal in perishable products, your stocktaking has to be more frequent.
• How much disruption can your business handle? If you cannot afford disruption, regular stocktaking may be a better option.

ALSO READ: What Are the Different Ways to Improve the Procurement Process?

Improving your Stocktaking

We have seen that there are different types of stocktaking processes, and there is no one-size-fits-all method.

But here are some tips that may help you improve your stocktaking process.

1. Barcode Scanners

Manual counting can cause errors, especially in larger companies.

With barcode scanning, you can decrease these risks, as they can swiftly and accurately record and store the stock levels simultaneously.

It uses a light sensor, lens, and light source to scan and view vast amounts of data in a single place.

ALSO READ: Guide on ERP in Production Planning

2. Eliminate Distractions

Smartphones are a big distraction – as are sounds from a TV or music system, PA announcements, etc.

It’s best to cut all of these out and focus on the task to ensure speed and efficiency.

3. Organize the Warehouse

A chaotic warehouse can make the going slow, causing more mistakes. Proper labeling and category-wise storage can ease things.

4. Ask for Feedback

Staff who performed the stocktaking should be asked for suggestions in improving the process.

5. Consider Dedicated Software

Manual stocktaking and using excel sheets can cause fatigue and lead to errors.

It would be a wise decision to switch to a dedicated software application that will help you achieve precision in your stocktaking process, and speed up the whole process too.

Robust inventory management software from Tranquil helps you see real-time stocks reducing dependency on stocktaking for information accuracy. In combination with barcode scanners and other tools, you can automate the process end-to-end for greater efficiency. While the system sends you alerts when the stock of a particular item is close to finishing, you can also configure it to send out purchase orders automatically to selected vendors, eliminating the need for you to constantly monitor, place orders, and so on.

Schedule a demo to see how Tranquil ERP and our Inventory Management Module can bring more efficiency into your business. Happy to answer any queries you may have.

 

Online shopping was anyway becoming popular with people when along came the pandemic and the associated restrictions, making it not just convenient, but also necessary.

Anyone with an internet connection has shopped online at least once.

Whenever you purchase something online, the customer gets an email from the seller confirming your order, as well as an invoice and shipping information.

A similar process is followed when businesses purchase goods or raw materials for their operations.

The company buying the goods creates a purchase order, requesting goods required from a supplier, who in turn creates a sales order which is a receipt listing the goods.

Sales and purchase orders are used by almost every business that buys and sells products and/or raw materials.

Both are interdependent on each other.

While both contain essentially the same information, they are different – and knowing this difference will help you maintain a smooth procurement process to keep the business organized.

The relationship between sales and purchase orders is defined by their differences.

The differences between a sales order and a purchase order define the relationship between them.

Before we delve into these matters, let us clearly understand what exactly a sales order and a purchase order are, how they are similar, and how they differ.

What is a Purchase Order?

A purchase order is a document sent to a vendor whenever your company needs to make a purchase – whether it’s for furniture, stationery, or inventory.

Normally, an internal discussion is held by the company to finalize the exact requirement to be sent to the vendor.

Before it is actually sent, authorized personnel need to approve the purchase requisition.

You could say that it contains an agreement between a company and a vendor that helps in tracking and controlling orders over the long term.

One of the last steps in a purchase workflow is the sending of a purchase order; this becomes legally binding on both parties once the supplier agrees and confirms the order.

It includes all details of transactions from one vendor, like:

• Order number
• Vendor details
• Product name and code
• Number or amount of items
• Price
• Discounts if any
• Terms of payment
• Shipping and delivery information
• Item description
• Total amount

A Purchase Order is a contract that necessitates the buyer to accept the delivery of products as per the order, considering that all agreement terms are fulfilled. The buyer then has to fulfill the terms of payment as mentioned in the Purchase Order.

P.O can be either electronic or paper-based; electronic purchase orders make the process more seamless, simplifying order tracking, payment processing, and accessing of reports.

While large businesses negotiate contracts with suppliers, small businesses depend on upfront purchasing transactions.

Large businesses are in a better position to lock terms and other specifications in the purchase orders, eliminating the necessity of negotiating during every purchase.

This also helps to protect the business from sudden market price fluctuations.

All purchase orders are filled, and this can help when you need to check the cost for budgeting, especially when you place recurring orders with the same vendor.

It suits the vendor as they have a clear picture of what to expect over the long term, allowing them to leverage market conditions to purchase raw materials when prices are low, scheduling employees to maximize productivity rather than producing one-time orders with a short turnaround, and so on.

The supplier is also aware of how and when he will get his payment, as it is specified in the invoice using the purchase order as a reference.

ALSO READ: How to Choose an ERP Software to Enhance your Purchase Management?

What Is a Sales Order?

A sales order is a document issued by a vendor or service provider to a buyer – in both B2B and B2C companies.

Usually, it is issued when the buyer makes the payment, but it can also be issued when credit purchases are made.

A sales order is typically triggered by the receipt of a purchase order, and it can be created in different ways.

It’s a commercial order created by the seller and issued to the purchaser.

• Created in real-time in digital format or instant delivery to customers
• In businesses that assemble or configure products as per customer specifications – a CTO or configure-to-order document is issued.
• In case of machinery or equipment installation, an ETO or engineer to order document is generated.

In all these cases, sales happen, and money changes hands – but they are not purchased orders.

Sales orders typically contain this information:

• Sales order number
• Customer name and address
• Billing address (if different from shipping address)
• Product name or service
• Product code where applicable
• Product quantity
• Price
• Payment terms
• Sale terms including a discount if applicable
• Date of delivery

Efficient ERP systems like Tranquil have robust procurement management modules that automate the entire process end-to-end, eliminating human error, and saving time and money while increasing efficiency.

A sales order is a binding document that is vital in any supply chain management system.

Whenever a purchaser issues a purchase order, it is the vendor’s responsibility to fulfill the order – and this can become complex when you deal with a large company.

Products may need to be delivered at different locations or dates, and in varying quantities, etc.

Sales orders help to obtain relevant details from purchase orders for individual orders to make sure that orders are completed correctly.

A sales order also helps to ensure that the seller’s inventory is on time and up-to-date.

On fulfillment of the sales order, an invoice is generated based on the information in the SO by the Accounts Department, and sent to the buyer.

ALSO READ: Route and Van Sales – Challenges and Opportunities

Similarities Between Purchase and Sales Orders

• They both list the foods and services involved in the transaction they refer to
• Both sales and purchase orders are legally binding contracts when the recipient accepts the document and its terms
• They are both used extensively in all businesses, but especially in B2B transactions in retail, wholesale, and manufacturing.

Differences Between Purchase Orders and Sales Orders

A lot of the information in both documents is the same, and it’s not unusual for people to get confused between the two.

Both sales and purchase order processing happens when a purchaser places an order to buy products or services.

They are both connected to the purchase process.

While they appear to be similar, there are some vital differences.

ALSO READ: What is Negative Inventory and How Can you Prevent it?

Let’s take a look:

• Purchase order is created by the buyer and depends on the terms as negotiated by the buyer; it becomes legally binding when the vendor accepts the order and mentions the terms acceptable to both parties.
• Sales order is generated by the seller, based on the information in the purchase order. For complex orders, recurring orders or orders with multiple delivery locations are filtered into individual orders including goods to be delivered to individual locations in the same shipment. In short, a single purchase order may be linked to multiple sales orders.
• Purchase orders are created and issued to vendors, and they may cover multiple sales orders with varying quantities and dates.
• Sales orders are issued by vendors to purchasers as a confirmation of the order, approving the contract and ensuring correct delivery of goods or services.
• A sales order has the relevant purchase order number mentioned on it, but a purchase order does not have a sales order number mentioned on it.

ALSO READ: What is Batch Tracking?

How Both Purchase Orders and Sales Orders Work Together

• When big businesses or companies have to purchase goods, they create an in-depth purchase order that describes an individual or multiple purchases from a vendor.
• This PO is issued to the supplier either digitally or via email or fax.
• On receipt of the purchase order, the supplier uses an app to enter it in their records. The details are verified by the automation in the software; the inventory is checked, and a sales order is generated for the items that are present in the inventory and ready to be shipped.
• The buyer receives a sales order from the vendor, confirming receipt and approval of the order. This document contains details and terms of payment of goods ready for shipping; stocked out goods are displayed as backorders, along with an estimated date of delivery.
• The buyer’s software compares the sales order with the purchase order for the terms automatically, flagging any anomalies. These could be caused by extended delivery dates, price variations, differences in quantity, etc.
• Items scheduled for later delivery or different location will be processed under separate sales orders attached to the original purchase order.

ALSO READ: Important ERP Modules and Functions

• The software app helps track the most complicated orders, alerting the user regarding payment dates, matching packing slips and sales orders with purchase orders, and so on.
• The buyer receives the goods along with a delivery slip that lists the goods included in the sales order.
• Packing slip is recorded in the buyer’s system, and a receipt is sent to the supplier, confirming delivery of the goods.
• The buyer receives an invoice from the supplier, which is verified against the delivery slip and PO to reconcile the order.
• The transaction is completed when the purchaser makes payment on the invoice. Every record is linked in the procurement management system, and easily accessible.

Vendors who carefully fill all the purchase orders received and sales orders sent, and track these transactions, will be able to project their earnings efficiently.

Systematic filling of all such documents will help you manage and control your daily operations and business overall more effectively.

It is easy to get confused with financial terms; however, an in-depth understanding of supply chain terminology is important to be competent and stay relevant as well as for developing trustworthy relationships with partners, vendors, and other stakeholders. Being well-versed in the differences between important commercial documents is just one part of it. To manage it all seamlessly, you need a robust software application like Tranquil. If you are unsure how it will help your business, do schedule a demo with us at a time of your convenience, and we will be happy to show you how it works, and answer all your queries.