Month: July 2022

Debit notes and credit notes are accounting documents used by businesses, with different purposes and recipients.

They are not the same as invoices; these documents are used to let customers or buyers of goods know how much money they owe to the supplier, or how much credit they still have, and to let sellers know how much they are owed by customers.

They are essential documents that help in tracking outstanding payments and shipping.

A debit note and credit note are usually issued at the time of goods being returned by customers to sellers or suppliers of the said goods.

The seller of the products gets a debit note while the buyer of those products gets a credit note.

The vendor or seller also gets the goods back, along with the debit note which states that their account is debited with the amount.

The seller then issues a credit note to the customer stating that their account is credited with the amount (of the value of the goods returned) mentioned.

ALSO READ: What are the Benefits of e-invoicing for your Business?

However, it is not only at the time of the return of goods by a customer to the seller that debit and credit notes get issued.

Sometimes sellers may inadvertently overcharge customers or make a mistake in calculation.

Or it could also happen that the seller may inadvertently forget to calculate the discount promised during negotiations.

At such times too, the buyer issues a debit note to the seller of the products, informing them that their account will be debited with the amount mentioned in the note.

This amount will be the difference between the amount billed by the seller and the actual amount.

In other words, by whatever amount the customer was overcharged.

The seller then issues a credit note to the customer or buyer, informing them that their account is credited with that amount.

Some businesses follow the practice of issuing debit notes to customers when they sell them goods, to inform them the amount owed to them.

This is normally done before an invoice is sent.

Similarly, a business may issue a credit note to their supplier, informing them that their account is being credited with a specific amount.

However, it must be noted that this last reason is not practiced much today, and so for the purpose of the article, we will focus on the first two.

Before we start to examine the difference between credit note and debit note, let us first look at each of them in detail.

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What is the Definition of a Debit Note?

A debit note is a commercial instrument that is created and issued to the seller by the buyer.

This document contains details like a short description of the goods in question, the amount to be debited to the seller’s account, and the reason for debiting the amount.

It informs the seller that a debit is being made in the buyer’s book to their account.

The motives for doing so could be any of the following:

• A debit note is issued to the seller if there is overcharging of the buyer’s account
• When the customer or buyer returns products purchased from the seller, they issue a debit note
• It is also issued when the seller’s account is undercharged by the customer.

The debit note decreases the accounts receivables for that particular customer or buyer in the seller’s books.

To acknowledge the receipt of the debit note, the seller generates and delivers a credit note to the customer.

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Debit Note Format

A debit note format is as follows:

• Name and address of the issuer
• Debit note number
• Invoice Date and Due date
• Issued to name and address
• Goods details like item name and number, quantity, unit price, the total price
• Grand total
• Tax if any
• Bank details

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What is the Definition of a Credit Note?

A credit note is a commercial instrument that is created and issued to the purchaser of goods by the seller.

This document contains details like a brief description of goods, the amount being credited to the customer’s account in the seller’s book, and the reason for the credit.

It is usually issued when the seller receives a debit note from the buyer.

In some cases, the seller may be the first to issue the credit note.

These are the causes for which a credit note is issued:

• A credit note is issued when the seller’s account is overcharged by the buyer
• A credit note can also be issued when the seller gets back goods sold by them to the buyer
• In case the seller has undercharged the customer, then the customer can also issue a credit note to the buyer.

The credit note decreases the account payables for that specific vendor or supplier in the purchaser’s books of accounts.

Usually, it displays a negative amount.

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Credit Note Format

A credit note format is as follows:

• Name and address of issuing company
• Credit note number
• Credit note date and due date
• Name and address of the entity to whom the credit note is being issued
• Details of goods like item name, product code, the quantity of each, per unit price, and total price
• Grand total
• Tax if any
• Bank particulars

Let us now compare Debit Note vs Credit Note:

The journal entry passed when a debit note is issued:

Sales Return Account – Dr
To Debtor’s Account – Cr.

The journal entry passed when a credit note is issued:

Creditors’ Account – Dr.
To Goods Returned Account – Cr.

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A debit note is issued to the seller of goods by the purchaser while returning goods purchased while a credit note is issued to the purchaser of goods or the customer by the seller of goods.

A debit note reflects a positive amount while a credit note reflects a negative amount.

A debit note is issued when the customer or buyer of the goods returns them to the vendor or supplier of those goods.

But a credit note is issued when the vendor or supplier of the goods gets products back from the customer to whom they were sold.

A debit note reduces the account receivables, and a credit note reduces the account payables.

When a debit note is received by the seller, they update their sales returns books and the buyer updates their goods return book; when a credit note is received by the buyer, they update their purchase returns books and the seller updates their sales returns the book.

A debit note is a different form of the return of products purchased, while a credit note is a different form of the return of products sold.

Debit notes are only issued when credit purchases are made, and credit notes are only issued when credit sales are made.

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What are the Benefits of Credit Notes?

These commercial instruments offer several benefits to businesses, like:

1. Helps in Avoiding Reporting Errors

Credit notes help businesses keep a record of errors in calculation or omission in all the operational business processes.

This will help in rectifying mistakes that have already occurred and take precautions to not repeat them.

2. Build a Good Relationship with Clients

When a business issues credit notes, they work as a guarantee to customers while carrying out transactions or entering into contracts.

While it’s true that it creates a temporary minor financial loss, being transparent and honest about your mistakes will go a long way in building trust and forging strong bonds with customers.

And this is crucial if you want your business to flourish and thrive in the long run.

ALSO READ: Difference Between Procurement And Purchasing

3. Improve Business Operational Performance

When you evaluate your mistakes, you can take the necessary steps to enhance operational efficiency.

As credit notes help you record and track accounting errors, they help you to assess and improve operational performance.

4. Businesses Avoid the Possibility of Conflict

Conflicts in business can occur quite frequently if there are no proper methods of detecting invoicing errors and reconciliation.

When credit notes are issued, the possibility of misunderstandings comes down significantly – in fact, there won’t be any scope for misunderstanding as you admit to your customer that an error has occurred.

5. Orderly Administration

Issuing credit notes is an indication of your business being orderly and organized, and in accordance with accounting systems.

ALSO READ: A Comparison of Sales Orders and Purchase Orders

How Will you Generate and Issue Debit and Credit Notes?

Of course, the conventional way was to do it manually, on paper.

With the advent of computers, people started typing them out on document editing software or spreadsheets, or even saving templates.

But none of these methods are free from errors.

Today we have accounting software that is capable of generating and issuing debit and credit notes.

You simply have to enter the details of goods and to whom you are issuing the instrument, and the software will calculate the correct amount, even accounting for tax.

This helps you maintain compliance with accounting regulations, as well as be on good terms with your customer.

ALSO READ: What are Backorders?

Tranquil cloud ERP is a robust, comprehensive, and flexible ERP solution with a feature-rich Finance Module. It helps you streamline all your financial and accounting operations, and be accurate in all transactions with vendors and customers, as well as to maintain compliance with accounting laws. If you’re unsure how Tranquil can help your business, do book a free demo with us at a time of your convenience, and we will be happy to walk you through our software. Our executives will be happy to answer any queries you may have.

 

Any business serious about growth would want to implement smart strategies for marketing and sales to stay competitive in the market.

There are several ways they can try, but the most efficient and quickest method would be to use a robust ERP system.

Sales include everything from communicating with the customer to tracking dispatched orders for individual customers.

These are often time-consuming and monotonous activities and can be easily automated and managed well using an efficient ERP.

The sales management module in your ERP enables you to maintain extensive and accurate records of all your sales transactions.

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The sales management ERP software allows you to update total sales and distribution functions efficiently.

It handles many roles: placing orders, generating new items, scheduling, and altering existing items, sending estimates and quotes to customers, copying, shipping, and so on.

The sales and distribution management also handles the job of creating sales opportunities, and efficient use of distribution channels to turn a profit.

Organizations use ERP to plan the way they want their business to achieve growth.

They can see where they need to make improvements, and how to do better in the future.

Thanks to automation, you can avoid manual data entry and save time with ERP; moreover, it initiates deliveries in a timely manner.

In a scenario of intense and ever-increasing competition, companies need to concentrate on improving sales procedures and increasing leads and conversions.

What Are the Main Activities in Sales and Marketing?

The sales and marketing modules offer functionalities to handle every phase, right from prospecting, to tracking customer orders, placing orders for dispatch, raising invoices, and accepting customer payments.

Here are the core functionalities in the Sales and Marketing module in an ERP:

• Sales order
• Scheduling orders
• Shipping
• Tracking invoices
• Sales returns

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Further, the below-mentioned functions can be recorded as well:

• Automation of employee activities like customer visits and expense tracking
• Setting marketing targets for employees
• Activities related to employees collaborating with franchisees and business partners.
• Customer payments after dispatch of goods
• Contacting customers to follow up on invoices and receiving payments
• Tracking lost orders and reasons for losing them
• Preparing thorough reports of sales and marketing activities like sales trends across different periods, analysing the data to make sales forecasts, etc.

Core Features in an ERP Sales Module

Customers and sales are at the heart of not just a business, but also ERP systems.

They connect orders – which puts demands on a business – with cash flows – which is what keeps a business going.

Now every business has its own sales requirements, yet there are some crucial features that should be there in the sales module of an ERP.

1. Customer Database

This is the entity you do business with – whether an individual or business.

The ERP allows you to group customers within the system in any manner that is relevant for your business – by product, location, etc. advanced features include prospecting tools, sales funnel, and linked customers, that are otherwise found in a CRM.

2. Multi-tiered Orders

A single customer may place an order for several different products. For example, let’s say a company makes baby products like toys, pacifiers, booties, clothes, cloth nappies, etc.

A retailer may place orders for differing quantities of different products, like 100 boxes of nappies, 40 boxes of pacifiers, and 500 boxes of clothes.

When the sales team takes orders, the order form has separate columns for product description, amount, quantity, and so on.

These can be broken down, with lines having different quantities and delivery dates, or even a specific date as requested by the customer for the delivery.

Perhaps the customer wants the boxes of pacifiers to be delivered earlier than the other products as they are urgently needed at his store.

When configured properly, ERP supports this arrangement effectively.

For example, the specific date requested by the customer can be defined in the system as a shipped or delivered date, with the difference being the transit time.

ALSO READ: Key Steps for Successful Demand Planning 

3. Quotes

Quotes in the ERP Sales module are pretty much like an order, without an agreement to deliver yet. They are also valid for a certain period – usually, the last date of validity is mentioned.

The ERP system will let you convert the quote into order once you’ve struck a deal after negotiations.

4. Sales Forecast

This is simply the expected demand for products, or in other words, sales, in the near future.

ERP software uses numerous statistical methods to predict future sales by using historical sales data, seasonal trends, current market conditions, and other factors.

Sales forecasts help businesses plan production properly, and order the necessary raw materials, and so on to meet future demands.

5. Credit Limit

Most businesses set credit limits for their customers.

This way, the ERP software will trigger an alert if orders for a particular customer are taken exceeding the credit limit.

Now this customer will only be able to place orders after making payment for previous orders.

This safeguards your business interests and ensures you don’t end up with several unpaid sales.

ALSO READ: Sales Order vs Purchase Order 

6. Backlog

A reliable ERP system must offer a database that can be queried on every open order, arranged by their delivery-due dates.

Orders to be delivered next month are likely to be in the process of either production or procurement, while those say 6 months away are not likely to have any action planned for the present.

It is also desirable that the production and quality control modules are integrated, as this renders decision-making that much easier.

7. Sales Territories

While not absolutely essential, this is a desirable feature.

ERP software can break down sales by executives categorized by regions.

This way, a particular executive will be responsible for all sales-related activities in that region, like bookings, orders, backlogs, tracking deliveries, etc.

ALSO READ: What is Backordering? How to Manage or Avoid it?

8. Sales Returns

Customers may want to return their purchases for a number of reasons like defects in the product, quality issues, duplicate orders placed by mistake, and so on.

Without a proper system to record and track returns, it may lead to data duplication, errors, and confusion.

A robust ERP sales module should have a proper system to account for sales returns.

Benefits of Using ERP for Sales Management

Let’s take a look at the benefits of sales management in a nutshell:

• Integrating business processes
• Improved decision making
• Unified reporting system
• Customer management
• Real-time information
• Forecasting
• Easy implementation
• Saves money
• Unified reports dashboard
• Efficient management of inventory

ALSO READ: Understanding the Role of ERP in Supply Chain Management

How Does ERP Help in Sales and Distribution?

• Obviously, the most important goal of the sales and distribution activity is increasing productivity and profitability. With the right ERP software, you will be able to respond appropriately to customers, improve response time, and achieve your sales goals quickly and efficiently.
• By allowing the sales team to view all the essential information in a central location, the ERP helps in the management, monitoring, and tracking of every stage in the sales process.
• Scheduling customer appointments, following up, evaluating competitors, and other activities are automated by ERP, and this helps to boost performance and productivity overall.

ALSO READ: Guide on How Do ERP Systems Work

• An efficient sales module facilitates improved collaboration among sales teams, enabling them to work together for better productivity and optimal results.
• An effective sales management module can help businesses enhance their sales processes, maintain and update records of orders, invoices, agreements, and other documents, manage accounts, and so on. This affords businesses comprehensive visibility into the process from start to finish, identifying opportunities for cross-selling and upselling, regulating expenses, and craft more efficient and customer-centric business strategies. Basically, it helps companies to have a tighter control in the sales department.
• It centralizes data in a unified dashboard and provides accurate data in real-time that helps in making informed decisions.

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• Accurate data and analytics help in predicting future demand for products, ensuring you don’t lose opportunities for sale.
• By boosting efficiency in the sales and distribution process, you can empower the sales team to stay competitive as a business.
• The solution can be smoothly integrated with other functions like marketing, inventory, HR, payroll, finance, production, etc.

The software helps in the planning, scheduling, regulation, and observation of contacts.

By sending alerts regarding current activities and opportunities in one place, it helps enhance performance and improve time management.

This helps to avoid hurdles during sales activities before they become problematic.

Your ERP sales management module maintains historical and current records of all transactions with customers including goods and services delivered to them.

This signifies the importance of sales management module for businesses.

ALSO READ: What is Inventory Cycle Counting and What are its Benefits?

The Benefits to Sales Function

Though manufacturing can benefit instantly from including sales in the overarching equation, it also benefits the sales function immensely.

The ERP solutions of today are capable of performing the same functions that standalone sales software used to do, and even go beyond it.

It not only allows easy access to the sales data, but it also tracks the sales process from end to end.

This can lead to quicker lead times, fewer manufacturing problems, better productivity, and enhanced efficiencies overall.

This in turn can help improve conversions and customer retention.

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Detailed records of communication with prospects and customers, transaction information like sales history, terms of payment, special requests for delivery, etc. can be easily maintained.

With ERP, you can also manage the sales cycle more efficiently, and provide improved customer service including after-sales service.

This will help you to decrease costs associated with marketing and sales.

By integrating all the functions into one organization-wide system and making data centrally accessible, you can facilitate improved decision-making for your business.

Siloed information can lead to redundant data and confusion.

But with a centralized system, everyone is on the same page.

An efficient ERP system with a feature-rich sales module can benefit your company tremendously. By automating monotonous activities and streamlining the entire sales process, you can stay ahead of the competition.

ALSO READ: What is Zero Inventory and Why it is Important?

Tranquil Cloud ERP is a robust, cloud-based ERP that can help boost overall efficiency and productivity by transforming your sales process. We can show you how exactly our software can help your business – all you have to do is book a demo with us at your convenient time. Our executives will take you through the solution and answer any query you have.

 

Distribution management is a business challenge that needs to be effectively tackled to ensure proper growth.

Raw materials being delivered earlier than required and getting damaged, or finished products arriving too late to fulfil consumer demand – both are potentially disastrous for business.

To manage distribution successfully, you have to have a robust strategy backed by real-time data and efficiently handle the different elements involved.

ALSO READ: Important ERP Modules and Functions

What Is Distribution Management?

Distribution management refers to the process of supervising the movement of raw materials or finished products from the vendor to the manufacturer, from there to the wholesaler, then to the retailer, and finally, to the end-user.

Several processes and activities like managing the raw materials supplier, warehousing, logistics, supply chain, packaging, inventory, etc.

It is a critical element of the business cycle, especially for wholesale dealers and distributors.

For any business, the speed at which they can turn their goods over determines their profitability.

The importance of distribution management can be understood from the fact that if implemented properly, it can help businesses stay competitive and deliver customer satisfaction.

Understanding Distribution Management

The ability of a business to attract customers and be profitable depends significantly on how well they manage distribution.

To be successful in this activity, it is imperative that the whole distribution process is managed with precision.

This is especially true of larger corporations with numerous suppliers.

Effective management of distribution in such cases can only be achieved when they automate processes through the implementation of distribution management software.

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Distribution management today is not merely about moving your products from one point to another.

You need to collect and share important information that will help in the identification of growth opportunities in the market and help you stay competitive.

Tech-savvy companies use distribution forces to gather market intelligence which allows them to evaluate their competitiveness.

There are two types of distribution management: sales or commercial distribution, and logistics or physical distribution.

Numerous functions are involved in distribution, including but not limited to – inventory management, customer service, warehouse planning, receiving, handling, and managing materials, information sharing, and more.

The goal of distribution management is to attain the most efficient delivery of raw materials, finished products, and work-in-progress (partially finished goods) to the correct place and in time, in the right condition.

The planning of physical distribution must be aligned with the overarching channel strategy.

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Who/What Is a Distributor?

An individual or business that engages in the supply of products in bulk to retailers or other businesses who sell to the end-usersare called distributors.

Let’s see a few examples:

• A distributor of rice supplies to restaurants, grocery stores, and supermarkets.
• A distributor of shirts supplies to departmental stores, and retailers
• A distributor of health drinks and energy bars supplies to gyms, health clubs, supermarkets, and pharmacies.

What Is a Distribution Network and What Are the Benefits?

A connected group of transportation systems and storage services is referred to as a distribution system.

It is developed in line with a distribution strategy created to ensure the movement of goods from a manufacturer through various agents, till it reaches the ultimate buyer.

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Distribution vs. Logistics

While both distribution and logistics deal with efficient movement and delivery of goods, there is a major difference.

Distribution management is only a part of the larger logistics management activity.

Logistics deals with the precise planning and various activities that aim to supply and transport goods effectively.

Bulk shipping and management, supply management, fleet management, delivery routing, security, temperature controls, warehouse, tracking shipments, etc. are the various activities involved in logistics or physical distribution.

On the other hand, distribution management is a system within logistics that is focused on fulfilling orders through distribution channels.

The channels mean the agents and other entities that a product goes through from its point of origin till it reaches the end-user.

Independent or third-party distributors, retailers, wholesalers, and e-commerce sites are some examples of distribution channels.

Commercial or consumer packaging, fulfilling orders, and shipping them are processes involved in distribution.

The importance of distribution in supply chain management is due to the fact that it deals with getting goods to the end-user or buyer in time, and with minimal waste.

This means that it directly impacts your profits.

ALSO READ: Benefits Of ERP Software For Logistics Industry

What Are the Elements of Distribution Management?

This is simply referring to the steps involved in sending the product from the manufacturer through various entities to the eventual consumer.

Typically, this includes:

• Logistics
• Supply chain
• Purchase order and invoicing system
• CRM
• Vendor management
• Warehouse management system
• Transportation management

Advantages of Distribution Management

We have read in the previous paragraphs that distribution management offers numerous benefits to businesses when effectively implemented.

These include waste reduction, lower costs, and increased customer satisfaction.

Let us examine the benefits in detail:

1. Increased Customer Convenience

When you implement a sophisticated management system, you make it simple and convenient for your customers to shop.

Without an efficient system, customers would not get most of what they wanted in a single store, and would have to go to multiple stores – and this would be very bothersome indeed.

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2. Better Organization

Without a proper supply chain and distribution management system, retail stores may get products in bulk directly from the manufacturers, and it will be almost impossible for them to store that much quantity.

3. Lower Costs

By streamlining all your processes, you stand to save a great deal of money as you won’t have to shell out extra money for urgent deliveries.

With a proper system in place, you will have whatever you need in time.

4. Fewer Errors

With a robust distribution management system in place, you can significantly reduce delivery errors.

You will also be able to get more clarity on the products that have to be delivered.

With a proper distribution management system, the chain of supply is much smoother.

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5. Accuracy

When you have an advanced distribution management system, you can order exactly how much quantity of an item you need for a specific period.

This helps to ensure that you don’t miss any sales opportunities and are able to offer your customers their favorite products.

6. Simpler Inventory Monitoring

Monitoring and managing your inventory becomes a breeze with the right distribution management system as everything is properly accounted for.

Every inventory item that is delivered and shipped out is accounted for, giving you an exact inventory count.

ALSO READ: What is Inventory Cycle Counting?

Challenges in Distribution Management

There can be multiple disruptions in distribution management, caused by various factors.

• War, protests, strikes, and riots are human factors.
• Epidemics, natural disasters like floods, shortage of raw material, and pest damage are natural causes.
• Vehicle breakdown, delayed flights, restrictive transport regulations, maintenance downtime, etc. are transportation challenges.
• Sudden fluctuation in customer or market demands, recession, payment issues, changes in values of currency exchange, change in fees, licenses, and so on are economic challenges.
• Quality control issues, packaging problems, and product recalls are product disruptions.
• Product returns, change in the shipping address, and order changes are customer disruptions.

Factors That Influence Distribution Management

Buying Habits

You must consider the purchase habits of customers as the rises and dips in sales influence distribution patterns.

Tracking them can help you plan appropriately.

Unit Perishability

Time is crucial when you are dealing with perishable products like medicines and food products.

Even the slightest delay in timing can cause your stock to get damaged and unsellable, leading to financial loss.

ALSO READ: Demand Forecasting and Its Importance

Buyer Requirements

A manufacturer’s or retailer’s demand is subject to change and can impact your distribution.

Transport Optimization

You must make the most of every delivery; this means ensuring that your trucks are loaded to their maximum capacity and that they are on the most efficient routes for delivery.

Seasonal Forecasting

Certain products sell better at specific times of the year; for example, air-conditioners are likely to sell more before summer sets in.

You need to consider what product mix will be optimal.

ALSO READ: What is Zero Inventory and Why it is Important?

Distribution Management Strategies

There are three main strategies of distribution management:

• Exclusive: This strategy targets a very limited group. Let’s take the example of high-end luxury cars. Only a handful of retailers will keep these cars in their showrooms
• Selective: This strategy targets distribution to a select group of sellers. For example, premium cosmetics are sold only to premium department stores, salons, and pharmacies.
• Mass: This kind of distribution targets the mass market – to general consumers everywhere.

What Are the Channels of Distribution?

Wholesaler

Most goods are shipped by manufacturers to wholesalers; as we read previously, pharmaceutical companies distribute medicines to pharma wholesalers.

Retailer

Products are sent from the wholesaler, and sometimes the manufacturers, to the retailers.

For example, clothes are distributed to clothing chains and departmental stores.

Distributor

This entity transports products from the manufacturer to an authorized distributor.

Let’s take the example of a Toyota factory that distributes Toyota cars of different models to authorized Toyota dealerships.

ALSO READ: What Is Cloud Data Protection?

Ecommerce

This is the latest distribution channel, where products and services are displayed online in virtual stores, and shipped (distributed) directly to the buyer.

The emergence of this channel has brought in sea changes, leading distributors to innovate and shift from conventional strategies and methods.

Key Takeaways

Let us quickly recap the importance of distribution management:

• It helps in supply chain management – from vendors to manufacturers to the end consumer, and includes inventory, logistics, warehousing, and packaging
• Implementing a proper distribution management system is critical for a company’s business growth and long-term existence
• Everything can be easily organized with robust distribution management
• When done properly, distribution management helps minimize errors, reduce cost, and save time.
• Effective distribution management helps improve customer service and ensure customer satisfaction.

ALSO READ: Why is Cycle Stock Important for Your Business?

Choosing a Distribution Management System

It is vital that you select the appropriate distribution management system for your organization.

Of course, this depends to a great extent on the goals and challenges of your company, and the channels and models of distribution it uses.

However, there are a few common factors to bear in mind:

• The system should be compatible with legacy systems and be easily integrated
• It should be flexible and scalable
• It should provide good security
• Preferably cloud-based
• The system should provide real-time streaming of data, data management, and analytics, and make it easy to share data
• Agility and adaptability, to make it capable of accommodating the quick changes required to resolve challenges and take advantage of new opportunities.

Tranquil ERP is a robust system that ticks all the above boxes. Do schedule a demo with us, and we will show you how it can benefit your business. We are happy to answer all your queries.

 

Inventory is the lifeblood of any business, and managing it properly is critical to smooth operations and business growth.

There are various methods to manage inventory efficiently.

An efficient ERP system with a robust inventory management module is a tool that most businesses rely on today.

We hear a lot of terms in connection with inventory – stock taking, overstocking, reorder levels, cycle counting, understocking, and so on.

Today, we are going to discuss cycle counting.

Many business owners and managers seem to have confusion regarding cycle counting, especially vis-à-vis stocktaking.

Let’s understand exactly what cycle counting is and is not, to eliminate this confusion.

What is a Cycle Count?

Conventionally, a stock-taking or inventory audit meant counting all the stock in a company, on a specific date.

This was usually at the end of the financial year, but depending on the inventory control policy of the organization, it could also be quarterly or monthly.

Every single stock of what a business uses, whether to manufacture or sell, needs to be counted.

This includes raw materials, spare parts, consumables, work in progress, and finished goods.

It goes without saying that this is a humungous task; but as this material is highly valuable, it is essential that it is carried out with precision.

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

Inventory cycle counting is a method that is used to count the inventory, but it varies from the conventional method.

Cycle counting involves counting a specific part of the total inventory regularly throughout the year.

This gives a much more precise count of the stock.

You can think of it as a method of checks and balances used by companies to verify that their inventory records and physical counts match.

When the cycle count is performed regularly, over time, the business would have counted all the goods they have.

With efficient inventory management strategies, you can eliminate or minimize transaction errors and have accurate records of your stock.

Regardless of the type of method followed by a company for inventory tracking, regular cycle counting is necessary.

In fact, it’s an essential auditing process that helps in managing inventory counts.

The company management decides the inventory management practices which are acceptable for their stock, depending on their specific situation in the company’s stock control policy.

Criteria like how frequently the high-value items should be counted, acceptable loss, and so on.

ALSO READ: Why is Cycle Stock Important for Your Business?

What are the Benefits of Cycle Counts?

Conventional stocktaking gives rise to several problems for the business; the main one being disruption of business for the duration of the stocktaking.

All operations that involve inventory are paused; this is done to ensure the speed and accuracy of the stocktaking.

Usually, the factory or branch where the stocktaking happens is shut down until the completion of the activity.

However, with cycle counts, it is not necessary to shut down operations.

Let us examine in detail, the benefits of cycle counting in inventory management:

1. Eliminates Process Disruptions

As cycle counts concentrate on specific stock ranges, they can be performed parallelly with normal operations, eliminating disruptions or keeping them to a minimum.

Cycle counting is a streamlined inventory management method, allowing the receipt, consumption, and dispatching of stock to take place as usual, without having to freeze operations.

When operations are frozen, you suffer a loss of business, which means revenue loss.

This can be avoided with cycle counting, especially when it is integrated into your system as a weekly or monthly routine.

Assessing inventory counts on an ongoing basis also helps in getting all the team members on the same page.

ALSO READ: Top Benefits of Stock Status

2. Quicker Remedial Actions

Thanks to the increased frequency of counting the same inventory items, cycle counting helps to identify areas of inventory management problems quickly.

This enables management to take appropriate corrective action to resolve them.

Cycle counts can be used to track and verify relevant controls.

3. Helps in Stocking, Production, and Distribution Decisions

Cycle counting can help to take better stocking, manufacturing, and distribution decisions.

Any business tries to cut costs, and a huge portion of capital is invested in inventory.

Most businesses feel that having more stock in the warehouse is key to better customer service – always being able to fulfil customer orders, and ensuring no sale is lost – however, overstocking has negative impacts on cash flows.

This can be pretty disastrous for a business.

4. Precise, Quick, and Frequent Decision-Making

With accurate stock counts, you can take better and more accurate decisions, and be able to forecast better.

You can also minimize over or under-stocking, along with redundancy write-offs.

ALSO READ: What is Stock Adjustment and Stock Transfer? 

5. Decrease Errors

As there is a lot of spare time between counts in the cycle counting method, there is sufficient time to resolve errors that could have occurred during operations.

Identifying errors is a breeze using the cycle counting method as compared to the conventional annual counting method.

It also increases the accuracy of the count, as you count smaller quantities.

As there isn’t a long gap between counts, you automatically reduce the time an error could continue in your operations.

In conventional inventory counting, in case of discrepancies, you would not discover it for months – which would eventually cost you money, and lead to dissatisfied customers.

With cycle counts helping you catch errors quickly, you can run your business operations more effectively, and know just when to place purchase orders.

6. Reduce Staff Disruptions

Cycle counts don’t impact staff availability for critical operations, unlike annual stock takes.

Additionally, they don’t cause delays in fulfilment processes either.

7. Save Resources and Time

Manual counting of your entire stock takes time and effort, and eventually, money.

Cycle counting helps eliminate all of this, and also causes fewer errors.

ALSO READ: What is Cross Docking? 

8. Enhanced Customer Service

The insights you gain from cycle counting eventually benefit your customers. How?

You are able to manage your inventory more efficiently, and have complete visibility into your stock – where it lies, what the proportion of each stock item is in relation to other items, and so on.

This will help you focus on your lead times so that you can plan your production to be complete in time to fulfil orders.

9. Increases “Stock Turns”

Stock turn is also referred to as inventory turnover rate; it just means the speed at which the stock is sold and replaced.

High inventory turnover or stock turns lead to reduce carrying costs, as inventory doesn’t stay in your warehouse for long.

ALSO READ: How ERP Can Improve Business Efficiency?

Implementing the Cycle Counting Method

Implementing cycle counts helps companies to view the accuracy of their inventory counts as an important part of the entire business operations.

It helps them to make better purchase decisions for your company.

The most important reason for using cycle counting is to get an exact count of your warehouse inventory.

The count is unlikely to be accurate with manual methods, as counting smaller bundles of inventory is much easier and increases accuracy too.

This helps to deliver better customer service as well.

Additionally, it can help you increase profitability as well.

These factors need to be considered before you actually commence implementation of cycle counting in your business:

• It must be included in the regular business routines – daily or weekly; unless you do that, the method will not achieve its intended purpose. Sporadic counting will only get you sporadic results. Remember, it is absolutely imperative that cycle count is done regularly.
• Maintaining a schedule for the counting process is essential. Create a schedule that is aligned with your business operations, as each business is different. However, we recommend a cycle of 13 weeks schedule. Here every inventory item you have will be counted in a cycle of 13 weeks.

ALSO READ: What Is Cloud Data Protection?

• Most importantly, create a plan before you actually implement the actual process. It is very important that you prepare well; only then will you be able to generate the results you desire. Ensure that the inventory items are properly arranged in your warehouse and that there is a precise plan in place for the proper counting of your inventory.

How Do Cycle Counts Work?

Cycle counting is subject to several variables, as discussed below:

• Team capacity – you should be able to deploy a few employees or hire them, to perform cycle counts of our inventory to ensure accuracy. After all, your stock is valuable, and you don’t want to write it off.
• Count scope – define the quantity of inventory in your warehouse to be counted per day, week, or month, and how this will impact your operations.
• Frequency – the count will be more accurate for high-value, high-turnover inventory items; it will also uncover any mismanagement happening with it.
• Location – ideally, inventory items that are heavy or bulky, and those that are high-selling, should be placed closer to the doors. This, however, also puts them at a higher risk, necessitating an exact count of those stocks.

ALSO READ: Why ERP User Interfaces are Important?

Types of Cycle Counting

There are different types of cycle counting, and each business has to choose the one that suits its operations the best.

Here are some suggestions:

Control Group Cycle Counting

A small group of items is counted a number of times across minuscule timespans.

In the long run, repetitive counting helps discover errors if any in the counting.

Once the errors are rectified, the process can be implemented over several areas to additional product categories.

Random Sample Method

In this type of cycle counting, random inventory items are selected periodically; it’s mostly used in warehouses that store massive quantities of similar items.

This method also helps to check for and identify discrepancies.

ALSO READ: The Ultimate Guide to Dropshipping

ABC Inventory Analysis

This method is very popular, and it ranks SKUs according to the volume of annual sales at cost price.

This is a laborious method necessitating a lot of preparation, as each item is assigned alphabet A, B, or C.

‘A’ refers to the quick-selling and high-value items, which are also counted more often, with ‘C’ which is a redundant stock that’s counted just annually.

Other

There are also hybrid approaches that combine two or more of the above methods.

Some companies use map-based cycle counts which are arrived at by dividing the stock quantity by the surface area required to stock it.

As mentioned earlier, each business needs to develop its own suitable approach for stock control depending on its unique requirements.

ALSO READ: Benefits of Integrating E-Commerce and ERP

Are Cycle Counts Fool Proof?

While there is no risk involved in cycle counting, it may not be a good idea to rely overly on this one method while ignoring other judicious processes of inventory control.

Cycle counts alone, of course, are not capable of providing comprehensive, 360-degree visibility into your inventory.

They are just snapshots, which do not take into account matters like seasonal demands.

However, if you plan carefully and specify exact items and locations, you can reduce these potential risks greatly.

How can ERP use Cycle Count Data?

Robust ERP software like Tranquil can help you with:

• Consolidation of the comprehensive stock situation for the company
• Planning cycle counts, regardless of methods
• Evaluate and help in the analysis of counts to identify chinks in your inventory control
• Automated cycle counts using auto-identification software, and defining cycle count parameters in criteria, which can be uploaded to the ERP system for best results

Cycle counting can streamline inventory management and help in cost saving.

To know how Tranquil cloud ERP can help improve your inventory management, do schedule a demo, and we can walk you through the software.

 

Implementing an ERP is a time-consuming and disruptive venture, but it affords companies the means to redefine their strategic goals and improve their business processes.

When you successfully implement an ERP system like Tranquil, it can spur innovation, improvement, enhanced collaboration, and overall efficiency in your organization.

Centralizing data rather than maintaining it in silos brings all the decision-makers on the same page.

When a company has unflinching support from the management, excellent change management programs in place, exemplary due diligence, and so on, its ERP implementation is likely to be smooth and successful.

The ERP solution is often deployed in several phases – it begins with discovery, moving on to business requirement documentation, planning, and deploying the software.

Tech support is also provided post-implementation.

When the KPIs for ERP implementation commencement are good, the chances of the deployment being well aligned with the business goals are higher.

It will also enable the company to derive greater value from the new system.

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

Important ERP Implementation KPIs to Know

As companies extract value from their ERP software for several years, it is essential to track long-term KPIs in addition to the short-term ones.

Only then will you be able to ascertain how close your business is to achieve its strategic goals.

Once the software is deployed, tracking the following KPI ERP can help you get a definitive picture of its success along with areas that you need to fine-tune your ERP strategy.

1. Downtime

This may come as a surprise, but believe us, it’s an important one – in fact, one of the most important.

One of the reasons you opt to implement ERP is to reduce or eliminate downtime.

Hence, it is sensible to keep an eye on how well the ERP is achieving this goal.

Make a record of the frequency of the downtime and how long it lasts, along with the causes for the same.

This will help you recognize the recurrent problems, allowing you to resolve them and improve performance in the future.

This is one area where you need the numbers to stay down.

ALSO READ: Guide on ERP Configuration vs ERP Customization

2. Adherence to Schedule

This refers to how well your ERP helps you in maintaining the production schedule you want to have.

It is again a critical KPI; after all, timely completion of projects and increased productivity is one important goal of ERP implementation.

A robust ERP solution will ensure that the gap between the scheduled production and actual production is as low as can be.

If that is not the case, it means that something is going askew, and it needs to be fixed.

3. Inventory Turnover

This important KPI ERP system measures the quantity of inventory sold in a specific time period.

ERP helps automate processes and offers improved visibility, which should ideally increase the inventory turnover.

Let’s say you find that the inventory of a specific product is always in excess; in that case, your ERP will be able to assess what quantity of that product you need to stock in the future.

Based on the purchase behaviour of consumers, the ERP can forecast the sales for the near future in just seconds.

While this can be done manually, it would take a very long time.

When you divide your sales by your average inventory, you get the inventory turnover ratio.

ALSO READ: Common Inventory Management Problems and Solutions

Let us suppose that you have defined a target of selling 20,000 pairs of socks each week.

When you implement your ERP successfully, it will track the sales closely and offer visibility into your inventory process as well as ways to sell more products.

The inventory management module helps you to avoid overstocking and tying up money, as well as understocking and not being able to fulfil customer orders.

You can maintain optimal inventory to ensure efficiency, continuous production, and/or sale, at an economical cost.

4. Project Margins

Tracking project margins will let you verify whether the ERP is giving your business the benefits you want.

This is especially true for construction and other project-based industries.

Project margins measure what a business earns after reducing the expenses incurred for labour, materials, and overheads.

A robust ERP can decrease labour costs, automate processes, ensure optimal resource usage, and simplify your budgeting, thereby helping you increase your project margins.

Materials, labour, expenses, invoices, budgets, bookings, estimates, milestones, and completions are some of the KPIs you should be targeting.

Robust ERP systems like Tranquil collate data on all these KPIs so that you get a comprehensive view of cost and revenue per project.

ALSO READ: What is P2P (Procure to Pay) Process?

5. Real-time Data

Unfortunately, the majority of businesses have no access to precise, real-time data; implementing ERP helps them to achieve cross-organizational data consistency, and gain insights that make proactive decision-making possible.

Different ERP systems have varying levels of BI capabilities, but most systems have pretty sophisticated BI functions.

They can show you when your manufacturing equipment will need to be serviced – to give you a small example.

This will help you reduce downtime as well as to set pragmatic expectations for consumers.

Another KPI could be how much you can reduce machine downtime.

6. Demand Forecasting

Demand forecast metrics define the reliability of the forecasts made by the business regarding demand in the near future for its products and services.

A robust ERP solution offers near-perfect accuracy in forecasts, helping businesses predict demand for specific products.

It considers factors like seasonal trends, market conditions, imminent calamities (weather-related), and historical sales data to make these forecasts.

ALSO READ:  Key Steps for Successful Demand Planning

7. Increased Purchasing Power

One of the ERP KPIs you can track is how much you could lower material costs by having better negotiating power.

An effective ERP helps to lower costs and maximize requisite business purchases, thereby improving your purchase power.

This can be achieved by leveraging the vendor performance management feature to point out weak points and bargain for more favourable terms with suppliers.

You can also identify the expensive vendors and look for more economical ones.

Your vendor list can also be aggregated, streamlining your purchasing and making it more efficient.

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

8. Scheduling

Scheduling metrics can help you track the speed of production against schedules to ensure that you meet the important milestones.

For example, for a company manufacturing soft toys or exotic bath items, a milestone could be manufacturing and delivering 3 times the usual quantity of their best sellers in time for the Valentine’s Day shopping.

A software development company could have a schedule to launch their newest bug fix within x number of days.

Thanks to ERP, you can now schedule these milestones easily; it offers clarity into the way manufacturing processes are tracking in comparison with deadlines, along with insights into potential interruptions, helping you to take proactive corrective action.

9. Employee Satisfaction

Employee satisfaction cannot be quantified precisely, unlike sales or inventory turnover.

But it can be measured through the success of ERP implementation.

If the employees are happy, you will find productivity and retention is up, which translates into increased sales – and attrition is down.

This is a good sign for the financial health of your company. If this is not the case and employees are unhappy, this will also be reflected with productivity and sales showing a downward trend. You will be able to take the necessary corrective action.

ALSO READ: Ways to Improve the Procurement Process

10. Business Productivity

Business productivity is measured to check business performance everywhere in the world.

Business goals can remain unattained if departments and teams in a company don’t use their working hours productively.

Supply chain problems, equipment failure, low employee output, and process inadequacies are the most common hurdles to business productivity.

However, these factors can be tracked easily by an ERP and evaluated comprehensively.

This will help you to assess everything that affects your productivity, and make the right decisions to improve those factors.

Let’s say that a certain product has high demand but the shipping is getting delayed simply because there’s a shortage of packing staff – the manager can see this in the system.

The manager can resolve this problem by hiring additional staff.

11. Customer Experience

Being able to deliver enhanced customer service is one of the main reasons that companies want to implement ERP systems.

Customer experience is one KPI that you should never ignore to measure.

When your business resources are optimally allocated and your processes streamlined, the business functions related to customer service are automatically improved; in fact, anything you improve in your processes eventually aims at improving customer service.

E-commerce business owners know that ERP helps them to manage important information like customer orders and shipping.

You deliver improved customer service when you process and ship orders on or before time.

ALSO READ: Benefits of E-commerce and ERP Integration

To provide good customer service, you also have to be consistent; you must deliver familiar and positive experiences continuously, to make sure that they return to you.

Delivering orders late or delivering wrong products, and mishandling of the situation can cause customers to leave you.

Unlike employee experience, this is a measurable metric.

You can ask customers for reviews on your social media pages and your website; you can easily check the number of new customers and returning customers as well.

ERP systems can also help with making improvements that can help you delight customers like multiple options, more flexibility, quicker than promised deliveries, and so on.

12. Business Processes and Timelines

You need to check whether your processes are able to align with your business goals better and if you are able to stick to your timelines.

The purpose of implementing ERP is process streamlining after all.

ALSO READ: Guide on Make to Order vs Make to Stock

13. IT spending

In today’s tech-savvy world, spending on IT is essential; but are you spending too much?

By tracking IT spending KPIs you can ensure deriving maximum benefit from your tech investment at the lowest cost.

You can reduce costs of hardware, maintenance, hosting, and subscription by implementing the right ERP.

If you are still continuing with legacy systems, you may end up paying huge money for maintenance as you’re likely to need specialized resources for it.

But if you deploy a modern ERP like Tranquil, you will get all the metrics easily and not have to bother about upgrades and customization.

This information will help you reduce costs without compromising on performance.

ALSO READ: What is Dropshipping and it’s Benefits? 

14. Sales and Revenue Growth

You should be able to see a growth in your revenues once you deploy an effective ERP, thanks to higher sales and lower expenses.

Expenditure is reduced thanks to business processes being streamlined, and higher operational efficiency in your organization.

With real-time data access, you can make informed decisions to improve sales.

To put it simply, revenue and sales KPIs show you how much you have made from selling your goods and services over a particular time period, as well as how that trend is likely to be over a longer period – say a year.

Average order value, operating margin, and average profit per product are the most commonly measured KPIs.

These metrics will help you see the best opportunities for growth, along with areas where cost-cutting can be done by improving efficiency.

These two types of insights can help boost sales and profitability.

ALSO READ: Common ERP Challenges in 2022

How Do you Measure ERP Success?

Defining key metrics is critical when you implement new ERP software.

A well-defined business strategy, a blueprint of the expected benefits of ERP implementation, and a brief of your current performance – this is a good places to start.

Eventually, you must understand that each company is different, and we cannot have definitive pointers for the implementation success.

It is therefore important that you outline what success means for your business.

We can help you successfully implement ERP software that will deliver numerous benefits for your business. Schedule a demo with us to find out how! Our executives will explain the system and answer your queries.

 

Blockchain offers numerous features like excellent security, transparency, and decentralization, that have made it a sought-after technology for numerous industries.

When you say blockchain, most people think of cryptocurrency like Bitcoin, which was created using this technology.

However, blockchain today has many more innovative applications.

It is now increasingly being used in conjunction with the cloud.

Today, a new field has been created by linking IoT and cloud computing, and it’s called the Cloud of Things.

Here, blockchain based cloud computing is a vital solution that can help overcome the limitations of Cloud of Things.

It can process vast amounts of data and exercise control over documents economically and securely.

The new tech is already showing tremendous promise for several industrial applications.

ALSO READ: How Do ERP and Cloud Computing Differ?

Introduction To Blockchain

Simply put, a blockchain is a chain of blocks.

It’s a linked list of blocks that basically contain records, and it keeps growing as users add to it.

Cryptography is used to store information in blocks.

Each block in the blockchain has a cryptographic hash of its earlier block, a stamp denoting the time it was appended to the blockchain, along with data connected to transactions.

Every block has a link to the block that was added just before it along with relevant information.

This makes it very difficult to remove or alter the previous block randomly.

So that means that once certain data is stored in any block if you want to alter that information, you will need to make modifications in every block that was added prior to the block you want to alter.

You could say that blockchain is one of the most radical innovations in the world of technology.

It is still evolving at a fast pace, and its applications are increasing by the day.

Blockchain and cloud computing make an exciting combination, where possibilities are endless and have the potential to disrupt industries as a whole.

ALSO READ: What is Hybrid ERP System?

What is the Scope of Blockchain Technology in Cloud Computing?

Let’s examine in some detail the fields where blockchain has the ability to improve the functionality of existing cloud solutions:

• Thanks to its powerful features, blockchain can help improve the performance of an application
• Its decentralized nature can help to establish an architecture where multiple computers can operate simultaneously for a single task. This could be like processing or storing of data which helps bring down the time taken for the operation. It can also speed up uploading and processing of data.
• The decentralization affords greater security, as hacking one central server will not really give the hacker much information. Therefore, any application that necessitates high security will benefit from blockchain technology. By using blockchain in cloud computing, data recovery will not be an issue.

Benefits of of Blockchain in Cloud Computing

Let us now take an in-depth look at the advantages offered by blockchain on cloud:

1. Cloud Computing with Hyperledger Blockchains

Hyperledger is an open-source blockchain technology application that is emerging thanks to collaboration under the aegis of the Linux Foundation.

Unauthorized access and alteration of data become extremely difficult due to the distributed copies of exactly the same blockchain records.

A solid audit trail can be developed thanks to the record-keeping being decentralized with peer-to-peer networks.

Due to the power of cloud computing, record sharing can happen in the cloud.

For the purpose of audit authentication, different parties can maintain exact copies either wholly or in parts.

In this arena, the Hyperledger users are not particular about staying anonymous, like cryptocurrency users.

Rather, Hyperledger apps have a group of a limited number of authorized users whose details are maintained with a central agency.

This authority not only knows the authorized users but also controls them, even though the hyper ledger blockchain is maintained by their efforts.

ALSO READ: Must-Have HRMS Modules and Features

2. Decentralization

Cloud computing is now being pushed to the edge because connected IoT devices don’t require checking in with centralized servers to handle data or decision making.

Let’s take the example of a biometric recognition node.

It will contain encrypted biometric data of every authorized person; the node will probably have to verify with the servers only when a match is not found.

A node will be able to operate on its own, unless there is a need to verify if updates are available.

When numerous copies of the database of the biometrics of authorized personnel are pushed to the edge – cloud storage that is geographically diverse, it becomes quicker and simpler to access official copies.

3. More Efficient Tracking of Ownership

When we integrate cloud computing and blockchain technology, numerous opportunities can be created.

These can facilitate improved management of real estate titles, stock ownership, legal agreements and contracts, and other valuable matters.

By shifting to cloud computing that manages a Hyperledger system, you can radically improve the clearance process.

Currently, stock transfers are carried out via a DTC or Depository Trust company, and it requires around three to six days for processing.

However, with hyper ledger blockchain and cloud storage, the transfers can be executed in seconds or microseconds.

Already, hyper ledger projects are being developed to improve the process further.

ALSO READ: Benefits of SaaS

4. Improved Data Security

End-to-end encryption enables keeping data secure while in transit and in storage.

Blockchains help to protect the transaction data, as well as their ordering.

You can get a triple security layer with the solid peer-to-peer distribution of exact copies of the blockchain throughout a cloud computing network.

Compared to a central data storage model, distributed data storage is much superior, and has a lower risk of data breach.

Here data files are broken down into tiny bits and are encrypted.

These encrypted bits are then stored across several nodes, in geographically diverse locations.

ALSO READ: On-Premise or Cloud Database Hosting: What’s Right for You?

5. Enhanced Private Key Security

The major risk factor in encrypted use is the protection of private keys from unauthorized access and theft.

These keys are used to authorize transactions in the cloud – one key to encrypt and one to decrypt.

The private keys can be better protected by implementing a cloud computing procedure which involves a double-step verification for authorizing transactions.

To increase the security further and make unauthorized access hard, the verification replies in the dual-step process can be set for single-use.

If even further security is required for the private keys, you can configure cloud computing to verify facial recognition or biometric recognition as the mandatory identification process.

ALSO READ: An Overview of Assemble to Order Process

6. Permanent Audit Trail

With blockchains, you can make a permanent transaction record.

Including the PoH or proof of history function is another innovation of blockchain technology; this function operates with a verifiable delay function.

It gives the cloud computing network a time record where no trust is required to be provided by the users.

The blockchain provides a robust and permanent audit trail of every transaction in the proper order, and the addition of the PoH function provides a timestamp for the transactional data that is permanent.

7. Fault Tolerance

The blockchain data can be easily replicated across a server network, as long as they are interconnected tightly via collaborating clouds.

This helps is reducing the risks of failure due to single servers or nodes.

In the event of any cloud node being disrupted, the network will still be able to provide uninterrupted services.

Thus, you get additional fault tolerance with blockchain in cloud computing.

ALSO READ: What Is Cloud Data Protection?

8. Geo-Independence

Today many companies deploy cloud computing applications and solutions internationally.

Now they have the option of maintaining their data in numerous physical locations.

With sufficient cloud storage being available across nations for a cloud computing network, the chances of data being lost or services being disturbed due to natural disasters or other causes, are very slim.

The processing load is just transferred to another network node that is fully operational.

As blockchain technology is essentially designed as a distributed data system, it is very effective for widening geographical diversity when used in combination with cloud networks.

9. Quicker Disaster Recovery

As records of transactions are distributed broadly in blockchain technology, you can have several authorized users.

This is achieved by making the blockchain public, or distributed to the users.

Even if a particular network node fails, it will not impact the remaining copies of the blockchain in any manner.

Every other node will keep operating, and the blockchain will be updated in spite of a node or two being down.

Depending on the transactional record of blockchain entries, a node that fails can draw level with the blockchain database status at present almost as soon as it is restored and is back online.

This is especially true when they have a protected timestamp.

ALSO READ: Why ERP User Interfaces are Important?

10. Scalability:

There can be a large number of transactions in blockchain networks on blockchain apps that are largescale.

Therefore, it is essential that you have robust services to process data.

Only then will you be able to execute numerous transactions speedily and facilitate blockchain services that are scalable.

Here, the cloud can provide computing resources on-demand to facilitate the operations of the blockchain.

Thus, we can see that by combining blockchain and cloud computing, you can create an integrated system that is extremely scalable.

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

11. Microtransactions

As the cloud computing technology becomes more commonplace, it has become more affordable; its capabilities, and utility of handling transactional amounts that are smaller, goes up.

Reward payments to nodes in the blockchain can be small amounts, keeping in mind that the cost of processing the transaction is even lower than the reward.

If we consider the example of Bitcoins: mining or creating Bitcoins is not sustainable if the computing power required and the utility cost incurred in mining the Bitcoins is more than the value of the Bitcoins.

Today we see cloud computing shifting from a necessity of running complete virtual servers for processing apps.

The sophisticated virtual servers in cloud computing now only have to duplicate the OS for its fundamental functions, to take care of processing applications.

The processing cost in cloud computing is steadily reducing thanks to this trend – making it more feasible to execute microtransactions.

ALSO READ: Inventory Management Challenges and How Best to Solve them

12. Distributed Supercomputing

With blockchain technology in cloud computing, you can use it in conjunction with innumerable individual computer nodes to render computing systems akin to huge supercomputers.

Calculations can be divided, managed, and disseminated to individual nodes for projects where you need massive computing power.

This is executed as a collaborative effort, with individual nodes rewarded depending on the proof they provide of their contributions.

ALSO READ: What is Product Bundling in Inventory Management?

Smart Manufacturing with Blockchain and Cloud

Giant strides in collaborative processing abilities, IoT and its requirements of edge computing, and decentralized storage of data are making their presence felt immensely, as blockchain technology becomes more capable and sophisticated, especially when combined with cloud computing.

Blockchain in the cloud can contribute hugely to smart manufacturing – where automated machines can be deployed to execute specific tasks more smartly and efficiently than the present.

Smart manufacturing currently faces several challenges, like industrial networks that are centralized, and third-party authority. This reduces security, efficiency, and flexibility.

However, the combination of blockchain and the cloud, you can improve security, implement the decentralized architecture, and enhance manufacturing efficiency throughout your organization.

ALSO READ: Why is Cycle Stock Important for Your Business?

Are you confused about how Tranquil software can help your company? Do schedule a demo with us to learn how! Our representatives will walk you through the software and answer all your queries.

Different manufacturers follow different strategies for manufacturing.

The strategy depends on the industry, the size of the business, the product, and the business goals that are to be achieved, among other things.

Any manufacturing system has specific goals to be achieved.

It all starts with the vision and mission of a company.

The mission drives the business goals, which help frame the business strategy.

While the strategy should be formed to help achieve the business goals, it has to be flexible enough so that changes can be incorporated as and when required.

The business strategy in turn helps define the manufacturing strategy.

Assemble to order is one type of manufacturing strategy.

ALSO READ: Sales Order vs Purchase Order

What is Assemble-to-Order?

The assemble to order strategy is one where the manufacturer assembles the product on receipt of a customer’s order.

The company stocks on the various parts, and holds that inventory till the orders come in.

Needless to say, it is imperative that the company is able to assemble and deliver the products within a very short time period.

Generally, the assemble to order production process is followed where there is the expectation of customization.

It also helps to reduce inventory carrying costs to a great extent.

Any business that wants to implement the assemble to order method of production needs to be able to:

• Adapt the assembly items to customize them for sales orders
• Have visibility into the available assembly item and its parts
• Stock adequate parts for guaranteeing fulfilling of orders
• Ascertain the profitability of each order by compiling both cost and price
• Perform warehouse integration to facilitate assembly and shipping
• Assemble to order at the time a quote for a sale is given, or on receiving a blanket order
• Link inventory quantities with the quantities for assemble to order.

During the assemble to order process, the product is assembled when a sales order is received, with the assembly order and sales order being individually linked.

ALSO READ: What is Demand Planning and Why It is Important?

How Does Assemble to Order Work?

The manufacturer makes a forecast of orders for products after taking into consideration factors like macroeconomic trends, historical sales figures, and the overarching market conditions prevailing at the time.

Depending on the predictions, the manufacturer orders the components required to assemble the product and keeps them in the inventory.

This allows them to avoid inventory of finished goods and thereby save on carrying costs.

Customers place orders, and these orders can be customized, as the product is not yet a finished one.

Depending on the order specifications, the manufacturer assembles the components into a finished product, and it is then shipped and delivered to the customer.

Going by this, we can think of the assemble to order production strategy as a combination of the make-to-order and make to stock strategies of production followed by different companies.

ALSO READ: What is Pipeline Inventory and Decoupling Inventory?

Let us take a brief look at both these strategies to get a clear picture:

1. Make-to-Order

In this production strategy, the manufacturer waits for customer orders to come in, and then orders the raw materials for production, or components for assembly.

The orders may be customized or not.

However, this method takes a fairly long time as the manufacturer does not even stock the components or raw materials.

Once these arrive, the production or assembly is carried out, and the finished product is then shipped and delivered to the customers.

The assemble to order strategy uses the make-to-order strategy with a difference: they have the components ready, and assemble or make the product once the orders come in – in that respect, it is quicker.

ALSO READ: Advantages of ERP to Automotive Businesses

2. Make-to-Stock

The make-to-stock strategy refers to the method of producing goods with what stocks of raw materials are available.

The raw materials are purchased based on demand forecasts made by the company for sales in the near future.

The products are manufactured based on anticipated demand, and the company hopes to fill orders that come in with this stock.

However, this can have the consequence of high carrying costs.

The assemble to order strategy uses part of the make-to-stock strategy, in the sense that it involves the assembly of products with the available stock of components.

The difference is that only that many products are assembled for which orders have already come in.

Hence, we can say that the assemble to order is an optimal combination of the above two strategies that offers an efficient and economical way to deliver customized products.

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Advantages of the Assemble to Order Strategy

1. Customizable Orders

This is one of the biggest advantages of the assemble to order strategy.

Often, companies face a demand for customized products; having an inventory of finished goods won’t help them meet this demand.

This strategy makes it possible for customers to order products as per their specifications, as there are numerous sub-assembly components in stock with the company.

Different combinations of these components can be made to deliver custom products.

Customization can be in the form of letting customers select components or subassemblies as per their preference.

Another method is that the manufacturer assembles the product with the components in hand, but is able to accommodate any customizations as per the customer’s desire.

2. Reduced Capital Costs

By cutting the need for storage and inventory, the assemble to order method significantly lowers capital expenditure, like warehouses, along with investment in raw materials and components.

It enables the manufacturer to implement a lean production model with reduced sunk costs.

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3. Speedy Delivery Times

As all the required components are readily available with the manufacturer, and the only time needed is for the final assembly, the assemble to order process ensures quick delivery to customers.

The assembly line can be optimized to ensure the quick assembly of customized products and even faster delivery of the customized products.

4. Easy Replacement of Obsolete Subassemblies

Assemble to order production strategy helps manufacturers to avoid dead stock.

With contract manufacturing or in-house manufacturing of subassembly components, it becomes easy to pinpoint subassemblies that become unusable because of spoilage or obsolescence.

5. Higher Inventory Turnover Ratio and Lower Costs

When you produce finished goods according to orders, you can sell a greater number of finished products in a specific time period, and reduce inventory costs by not keeping finished products in inventory.

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Disadvantages of the Assemble-to-Order Strategy

1. Unreliable Forecasts

Manufacturers rely heavily on market trends and historical sales information to forecast future demand when they implement assemble to order strategy.

However, there are several external factors that can play havoc with your forecasts; you may face a shortage of inventory parts if you face a sudden surge in demand, or be left with surplus stock in the event of a sudden dip.

2. Managing Sub-Assembly Parts

It is crucial that manufacturers track and control sub-assembly components’ inventory meticulously.

This can cause efficiency to decrease while pushing up the cost.

Monitoring inventory status is essential if you want to ensure a seamless supply chain so that you are not caught short in times of high demand.

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3. Over Dependence on the Quality of the Final Assembly

In the assemble to order method, the final assembly process is the most important, as it establishes the quality of the finished product.

Ensuring that the employees who work on the final assembly are efficient and properly trained is of crucial importance.

Examples of Assemble-to-Order Strategy

Let’s think of a business that sells health drinks that are customizable.

They would only stock up on the ingredients and assemble the drink as and when they get orders.

If they assemble (make) the drink in advance, they would have to throw away the ones that remain unsold.

The assemble to order business model is followed by several electronics companies – especially when it comes to computers.

Customers can specify the options they want: monitor according to size, resolution, ports, speakers, CPU processors, graphics cards, type of keyboard and mouse, and so on.

The companies have all the components in stock; they are combined as per the customer’s specifications, and then shipped to be delivered to the customer.

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The Assemble To Order Model with Smart Manufacturing Software

The assemble to order production model can be simplified and made seamless with the right software – like Tranquil.

Its powerful production module can support your strategy effectively.

Tranquil is a comprehensive tool that manufacturers can implement to exercise greater control over their business.

It helps in:

• Management of Inventory – Both raw materials and finished goods effectively and economically by enabling you to configure reorder levels and send alerts so that you never run short and are able to fulfil orders; it can also be set to automatically place orders with predefined vendors. Real-time visibility into finished products, raw materials, and components let you know at a glance if you can fill immediate orders or not.
• Save Multi-level Bills of Materials – By saving your BOMs you can calculate manufacturing costs and production times more efficiently. For assemble to order strategy, you will need to save multi-level BOMs which you can do with Tranquil. It also offers precise costing information.

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• Effective Management of Outsourcing – If you outsource your components or subassemblies manufacturing, Tranquil will help you track both the production and inventory at multiple locations. The production status at the outsourced manufacturer’s location can be tracked, and you can also give them access so that you are on the same page with regard to the start and finish of production.
• Others – In addition, Tranquil helps you manage your HR, Accounts, payroll, procurement, and other activities more efficiently. It can be easily integrated with other third-party systems as well.

Conclusion

Manufacturing assemble to order products can be dicey – especially when you lack a tool that can store and sort multi-level bills of materials. That is why eventually some manufacturing companies may sway between assemble to order and make to order.

If you are in that group and still undecided, the wise thing to do would be to first consider the level of customization you offer.

If your products are fully customizable per the customer’s specifications, it makes sense to go with the make-to-order approach.

But the important thing to bear in mind is that whether you implement either workflow for your business, you need the proper tools that will scale and support your business as you grow.

Tranquil is a cloud-based ERP system that can be customized to add or remove modules and functionalities as per your requirement. Do schedule a demo with us so that we can show you how our software can aid in your chosen production strategy whether it is assembled to order, make to order, or make to stock. Our representatives will be happy to answer any query you may have.