Month: January 2023

Thanks to the increased adoption of ERP software in the past few years, businesses of all sizes in the manufacturing industry are experiencing increased efficiency, productivity, and growth.

Manufacturing ERP is making a significant impact on organizations, transforming the way they operate.

Robust ERP solutions like Tranquil help solves common problems faced by manufacturers and help them leverage emerging opportunities by providing in-depth insights into the business processes.

If you operate a manufacturing business and are not using an ERP system, you are likely to face a wide range of manufacturing issues every single day.

So what are these problems, and how exactly does ERP help to solve them?

Common Problems in Manufacturing Industry

1. Data Collection Errors

The speed at which you collect and analyze data can define the speed at which your business grows.

With manual methods, you will tie up resources and time; moreover, it is prone to inaccuracies, causing expensive delays for your business.

Solution

ERP records data automatically, giving your immediate access.

Even if your production unit necessitates multiple applications to manage it, and you have numerous departments, all of the information is presented to you in a single centralized location.

ERP gets rid of siloed and fragmented data and presents a holistic view of your production processes, inventory levels, finance, sales forecast, assets, and more.

It empowers you with essential information that you need to improve the overall efficiency of your business.

2. Incorrect Reporting

Lack of real-time information means you don’t know the exact inventory or finance situation at any given time.

Outmoded data handling methods can lead to delayed reports and unanswered queries, leading to more hurdles that impact the business negatively.

Solution

ERP improves data visibility with its accurate reporting features, enabling manufacturers to pre-set projections that will allow them accurate raw material procurement to eliminate problems like under or over-production, reduce the inventory turnaround time, etc.

When used correctly, this information can help businesses take precise, data-driven decisions, and help boost revenues and profits.

ALSO READ: Tips to Improve Inventory Turnover 

3. Integration of Operations and Locations

Many manufacturing companies have units that are spread across multiple locations, and use disparate systems, leading to data silos, poor flow of information, and lack of coordination among locations and even departments.

It is difficult to implement standard processes throughout the company.

Solution

ERP software solves one of the biggest manufacturing problems through the integration of various processes, like planning, procurement, inventory, production, HR, marketing, sales, finance, supply chain, and assets.

It also collects data from all departments, locations, and business verticals, allowing full visibility into every process, and a bird’s eye view of the whole business.

Thanks to ERP software, companies are able to implement policies throughout the company, define rules and guidelines for various activities, as well as standardize workflows.

ALSO READ: Challenges in ERP Implementation

4. Proper Inventory Control

To keep production going, manufacturing companies need to ensure optimal inventory levels.

This becomes difficult without complete visibility into inventory.

A manufacturing company may have inventory at various locations – in warehouses, production lines, and in transit.

This can easily lead to situations like stockouts or overstocking, impacting production and costs.

Solution

We’ve seen how it becomes easy to define and deploy standardized processes and practices across the organization; the same goes for inventory control.

Things like reorder levels and quantities, safety stocks, and lead times can be defined, and alerts can be set for approval notifications to purchase inventory.

ERP software also generates a wide range of inventory management reports that help you to understand trends and take remedial action to help you maintain optimal inventory levels, reduce costs, and boost profitability.

5. Optimum Resource Utilization

One of the biggest problems in manufacturing industry is optimal resource utilization for reducing production costs.

Without an integrated system, there is no way for you to know how well you are utilizing your resources.

Manual paper entries are prone to duplication or loss of information.

Solution

ERP systems record important information about your company’s equipment, plant, machinery, etc.

It sends notifications for routine servicing, maintenance work, inspection, and so on, based on pre-specified conditions or time periods.

This helps to make sure that all your equipment and machinery, and in fact the entire plant, are in good operating condition for maximum productivity and longer running life.

With various reports like Capacity Utilization, Machine Downtime, and Equipment Efficiency, you can get insights about whether the utilization is proper or not, and take the necessary steps to ensure efficiency.

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

6. Low Employee Productivity

When employees are inefficient and/or unproductive, it can have a negative effect on the functioning of the whole organization.

Employees may spend inordinate periods of time in executing repetitive and routine activities, paperwork, data entry, complying with regulations, report generation, bank reconciliations, following up for authorizations and approvals, and the like, rather than focusing on tasks that add value to the business.

Solution

Through digitization and automation, paperwork and manual effort is reduced significantly.

Approvals are sent through email, reducing the overall time required for the process.

It also sends alerts and notifications to enhance coordination and communication.

Thanks to the quick and easy reporting features of Tranquil ERP, employees can save a great deal of time, which they can redirect towards building better relationships with vendors and customers, looking for less expensive alternatives, and the like.

ALSO READ: Ways to Improve ERP with AI

7. Reducing Costs

Every business has the ultimate aim of earning profits; in a manufacturing business, the most efficient way of earning and increasing profits is by reducing production costs.

Cost control is one of the most significant problems facing manufacturing industries.

Without a proper system, it is almost impossible to know exactly how much cost you incurred on raw materials, procurements, maintaining inventory, labor, overheads, and so on.

It will also not be possible to observe trends and view problem areas where you can reduce the cost.

Solution

With a robust ERP solution like Tranquil, you can set standardized processes for all activities like inventory management, procurement, supply chain, etc.

This can help you lower the cost of operation, leading to higher profits eventually.

With detailed, real-time reports on the different costs incurred by your business, you can generate various reports like Department Expenses, Overhead Costs, Production Cost, Work in Progress, Materials Cost, and so on.

These reports help you keep a lid on your expenses as well as to analyze the expense pattern.

Managers can check if the expenses are as per the estimates or if they overshoot the estimates, allowing them to take remedial action.

ALSO READ: Key Benefits of ERP for Accounting and Financial Management

8. Supply Chain and Timely Delivery

Delays in the supply chain affect the entire business – pausing of production, delayed shipments, increase in production cost, and shortage of products for delivery, are just some of the problems that can happen.

Supply chain can be affected by several factors that are often not in your control, but there are still ways to get around them.

Solution

With the right ERP solution, you can ensure that the correct product gets delivered to the correct place, in the correct quality and quantity, and at the correct price.

ERP helps businesses to set practices and standards for materials requirements, supply contracts for the long-term, price negotiation, optimal inventory level maintenance, configure rules and workflows to manage warehouses, arrange inventory if speeding up production is required, and ensure quality with frequent inspections and testing.

These methods help to make sure that you have a robust supply chain and deliver products to your customers in a timely fashion.

ALSO READ: Important ERP Modules and Functions 

9. Low Production Quality

It is essential to manufacture quality products and to achieve this, every manufacturing company must follow some basic standards of quality.

It can be daunting and time-consuming to maintain the same standard of quality in every batch that is produced.

Solution

Tranquil ERP has inbuilt tools for quality control that can help you execute quality control measures, especially where your newly procured raw materials are concerned.

The system can effectively track and assess the materials, and monitor the quality of the product as it goes through the various processes of production, to ensure that the finished product is of good quality and fit to be delivered to the customer.

ALSO READ: How Does ERP Deliver ROI for Business?

10. Poor Planning and Scheduling

In manufacturing, every element of your facility must be planned well.

Only when you manage it properly, can production schedules and deliveries be properly aligned.

However, it is nearly impossible to do this without inventory and sales forecasting data.

Solution

ERP offers accurate data that helps you draw up schedules for activities on the shop floor, and allocate the correct resources like raw materials, employees, and equipment to each phase and activity, so that production can be started.

Most companies don’t have planned workflows; ERP eliminates this problem.

You can easily schedule all the batches appropriately, to meet market demands, and make sure your materials are properly utilized, for uninterrupted and sufficient production.

ALSO READ: Benefits of ERP in Purchase Department

11. Changing Consumer Demands

Not having information about dynamic market trends and consumer demands can be a big stumbling block for manufacturing companies.

You may have improper raw material procurement, leading to lengthy inventory turnaround, over-production or shortage, etc., which could result in huge losses in revenue.

Solution

With ERP systems, you can record and store vital information, and use it for the betterment of your company.

ERP allows you to study important customer data, giving you vital insights into their behavior.

It empowers businesses to plan production more efficiently.

The two-way communication feature allows your customers to check the status of their orders and also share reviews.

This can be very helpful in making some tweaks to the product as per customer’s needs, and offer them enhanced service.

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

Get the Best ERP for Your Manufacturing Business

Are you stuck in a time warp, with spreadsheets or obsolete and disparate systems for your manufacturing business?

Are you unable to trace ingredients and products? Are you spending a lot of time to verify reports from disparate systems?

If you have answered Yes to any of these questions, it’s time to switch over to Tranquil Cloud ERP for manufacturing. Tranquil is a cloud-based, secure, scalable, and flexible software solution that will help you save time, effort, and money, and accelerate your growth story. Do schedule a demo of our software to know more, and how it can improve your manufacturing business. We will be happy to walk you through the solution and answer any queries you have.

The order to cash cycle, usually shortened to OTC or O2C, refers to the process of receiving, processing, handling, and concluding orders placed by customers.

This means, managing every aspect of the sale, including shipping, payment collection, invoice creation, and updating of each phase throughout the process.

The OTC process affects not only your profitability but also your customer relationships, and hence, it is essential that you optimize it properly.

Unfortunately, most businesses focus their resources and efforts on the activities leading up to order placement by the customer and fail to optimize the order to cash process.

However, the companies that do realize the importance of this and optimize the OTC, are able to enjoy significant benefits throughout the organizations.

With the right integrated solution like Tranquil Cloud ERP , you can radically improve the functions involved in the order to cash process.

The entire process can be streamlined end-to-end, delivering quicker, more effective customer service, minimizing errors and delays, and making sure that the performance data has the highest impact on the business.

ALSO READ:  Advantages of a Cash Book 

Order to Cash in Detail

It is actually the entire order processing system of a company which begins exactly when a customer places an order; everything that happens prior to that is branding, marketing, sales, etc.

Not that these functions come to an end with receipt of a customer’s order, but the main activities lie in the customer relationship phase before the order to cash cycle starts.

The order to cash cycle doesn’t end with the order being paid for – there is activity data that is recorded through the cycle that has to be analyzed to help management recognize areas to be enhanced or optimized.

O2C impacts all operations like supply chain, inventory, and labor management; so, without optimization, there could be hurdles in any one area which can have a ripple effect and cause major problems.

The invoices and accounts receivables functions of OTC define the cash inflows for the business, collection delays can complicate matters, affecting liquidity and leading to delays in procurement, accounts payables, and payroll.

When you have a robust OTC process, it demonstrates that you’re not a fly-by-night operator and that you excel at every business function, from manufacturing to sales to fulfillment and more.

ALSO READ: What is Economic order Quantity?

Why Is the Order to Cash Process Important?

We have seen that order to cash impacts customer retention and interaction, revenues, and business growth.

Let’s see some specifics that explain this:

• It helps in streamlining the purchase process for customers
• It brings down the time required for order fulfillment
• There is a reduced need for the customer support executive to intervene
• It facilitates accurate order fulfillment when they are placed the first time itself
• It facilitates fulfilment of orders in time
• You can collect account receivables quickly from your customers
• Eliminate re-entering orders and forms
• Demonstrate your professionalism to customers
• Ensure product availability and avoid taking backorders
• Gradually enhance record accuracy and reporting on data

ALSO READ: What is Reverse Factoring?

Technology Facilitates the Process at Every Level

This is something to remember; in every step of order to process that we will discuss below, technology can be used to improve that particular function.

Interconnected systems and innovative technology can help all stakeholders to gain access to accurate information in real-time.

You can incorporate automation digital invoicing and shipping management etc.

To get optimal results from O2C, you need the right combination of process management, tech, and collaboration between departments.

Steps in the Order-to-Cash Process

Let’s now take a look at the steps in the Order-to-Cash process:

1. Order Management

This is the very first step and starts immediately when the customer places an order either through your website, telling your sales exec in person, your eCommerce platform, or via an email.

By automating your order management system, notifications will be instantly sent, triggering a sequence of steps in other departments so that they are ready to handle the order.

You can ensure that new orders are properly organized and the relevant persons are notified immediately so that the order is fulfilled correctly and in time.

ALSO READ: What is a Ledger in Accounting? 

2. Credit Management

By being diligent about credit management, you can avoid problems that could happen as you approach the end of the process.

In cases where credit is being provided, customers placing orders for the first time must be put through a credit approval process.

With software automation, you can simplify the process of approval or denials, and if you feel a particular customer needs to be vetted more thoroughly, you can alert the finance department.

If they are repeat customers with proper approval for credit, they can be sent straight to the fulfilment stage.

However, if the returning customers are those who were denied credit for a previous order, they must be handled like new customers.

With automated credit management, this entire process becomes easy and seamless, with strategic credit guidelines making sure that credit is only issued to worthy customers.

ALSO READ: How Can you Track UOM?

3. Order Fulfillment

Inventory management software like Tranquil plays a vital role in the order fulfillment process.

It updates inventory counts on the sales side as and when they happen so that you will not accept orders for products that are no longer in stock.

In the event this does happen, the system will flag it immediately, helping you to notify the customer and prevent billing from happening.

Canceling the order in time can save you embarrassment.

Orders sent for fulfilment must be standardized and in digital format so that the team member who starts to work on fulfilling the order can understand all the important details.

Legacy software programs and paper orders where data sharing is problematic can cause errors, hurdles in fulfilment, and eventually unnecessary expenses.

ALSO READ: Inventory Management Problems and Solutions

4. Order Shipping

The logistics determine how successful the shipping of your orders is.

This is why it is critical that your shipping function must be audited on a regular basis, to make sure that it fulfils the standards of performance that are expected.

You must immediately update data from order and fulfilment management so that the shipping team can make the appropriate shipment plans after considering the pickup schedules of the carriers, and ensure that customers get orders in time.

ALSO READ: Ways to Reduce Customer Lead Time in Inventory

5. Customer Invoicing

Delays and errors in invoicing can have a domino effect, leading to problems with cashflow, and eventually disrupting the whole business – this holds true for everything related to accounts receivables and credit management.

When you send out invoices accurately, based on a proper timetable, your finance personnel will be able to forecast cash inflows more accurately and plan the business expenses based on that.

It is imperative that the invoicing system gets precise information from employees who supervise the front-line activities.

For invoices to be automated and sent off with accurate information and on time, you need to enter data points like order date, details of the order, cost, terms of credit, shipping data, and so on, in the invoicing system.

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

6. Accounts Receivable

Outstanding invoices must be flagged by the accounting software at pre-decided intervals so that you can prevent them from becoming overdue.

Your accountants in charge of accounts receivables must review the invoices to check for obvious mistakes that could result in payment getting delayed.

Like, say, an unpaid invoice with 30 days credit term must be flagged after 15 days, which in turn triggers an automated reminder for payment along with an invoice review.

Whenever an error is identified, the accounts receivables team needs to be able to review the information quickly from the ordering system to find out where exactly the lapse or issue in the data has taken place so that they can send out a fresh, revised invoice as soon as possible.

ALSO READ: Benefits of ERP in Accounting and Financial Management

7. Payment Collections

One of the first things to do to protect your business from backlogs in collecting accounts receivables is to have staff document the payments received within a specified period.

Businesses usually have problems when customers have made payments, but they have not been entered into the system and therefore the accounts continue to display as unpaid.

Now this situation can create unpleasantness and make the customer indignant, as they may feel they are being asked for payment which they have already made.

It can also cause erroneous estimates of cash, leading to the finance department making inaccurate forecasts of high deficits in cash.

ALSO READ: Why Do Businesses Need Purchase Requisitions?

When an invoice does lapse and becomes overdue, you must flag the customer’s account and put their credit on hold.

When they attempt to place another order, the system must alert the customer that the payment must be made first, and only then will the order be accepted.

The accounts receivables team must contact customers with overdue invoices straight away, and inform them of the procedures for collecting the overdue amounts, and the potential penalties that will be imposed on them if this continues the next time.

The finance and accounts departments should review every overdue account frequently so that the bad debt forecast can be updated and accurate, and they can decide on the next steps to be taken.

ALSO READ: Route Sale vs Van Sales

8. Reporting and Data Management

Integrated software systems are able to track a range of performance metrics through all stages of the order to cash process.

The management can track and analyze this data to see how the general O2c process flow impacts everything else in the business, like customer relationships, sales cycles, and their length, customer service activities, onboarding, etc.

Managers can also leverage these data points to establish if bottlenecks in one specific area negatively affected other functions of OTC.

As the entire process is very codependent, even minor inefficiencies in any one activity can intensify into expensive issues in another function or stage.

ALSO READ: Benefits of Sales Management Software 

To Sum Up,

By successfully handling and optimizing the OTC cycle, companies can become more efficient, delivering greater value to their customers, as well as receive payment in time for their offerings.

The right technology can help companies significantly improve their order to cash process, and free up their resources, allowing employees to focus on value-adding tasks like delivering an engaging and exciting buyer experience to their customers.

ALSO READ: Accounting Trends for 2023

Tranquil Cloud ERP is the ideal solution that can automate all the steps in the order to cash process and help you deliver exemplary customer service while enhancing your bottom line and accelerating your path to business growth. If you’re not sure of how exactly this works, do schedule a FREE demo of our software. We will walk you through the system and our representatives will be on hand to answer all queries.

 

The accounting field, like most others, has undergone radical transformation today thanks to the advent of technology, and the increasing regulations governing the activity, spurred by spiraling cases of fraud and scams.

Hesitating to adopt tech or failing to comply with changing regulations can create a mountain of problems for your business.

Risk of fraud, threats to security, erroneous financial statements, and leaving your business open to fines, and other penalties for non-compliance with regulations are some of the problems you are likely to face.

The use of sophisticated software like Tranquil Accounting and Finance by trained accounting professionals can help you overcome most of the accounting challenges of the modern business world.

ALSO READ: Accounting Trends for 2023

What Do We Mean By Accounting Problems?

Material errors in financial statements, fraud that happens and stays undetected because of inefficient processes and poor internal controls, improper application of standardized accounting principles, non-compliance with regulations, cybersecurity risks, and so on are the common problems that can arise in accounting.

The consequences of these issues may be serious, like impacting the cash flow negatively and give a false picture of the business profitability.

The Reasons for Accounting Problems

Many problems could be caused by using obsolete accounting software; other reasons include not having firm control internally, and of course, intentional fraud.

This could happen because of an insufficient number of employees or inadequate training.

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

How Can you Solve Accounting Problems?

One of the ways to tackle challenges in accounting is to use the right software that has the features to handle the accounting standards of the present and help you meet compliance requirements.

You should also ensure that you have the necessary number of accounting staff to handle the accounting requirements of your business and that they are properly trained on the software, your unique business accounting process, regulations, and so on.

It is also essential that the management must convey the company values, ethics, and expectations from the accounting staff, empower them with all required information, and transparent, two-way communication.

Common Accounting Problems and Solutions

Let us look at the most common accounting problems that organizations face, and how they can be solved.

1. Revenue Recognition

Revenue recognition problems include not applying the prescribed SCOPA standards, making duplicitous revenue schemes, not accounting for consignments correctly, using estimates that are arbitrary, and shipments of third-party inventory over and above possible usage levels.

ALSO READ: What is a Ledger in Accounting? 

Solution:

Implementing a robust ERP solution that can help your organization achieve the correct revenue recognition, and providing proper training to your accounting and finance teams with regard to accounting standards in your region, to maintain compliance.

While you can continue with excel worksheets, they are not as quick, efficient, or accurate as using a software system like Tranquil.

2. Asset De-Valuation and Fair Market Assessment

It could happen that accountants may overlook or inadvertently omit to make impairment write-downs or the requisite adjustments for noting the necessary assets or liabilities at a fair market assessment.

With changing economic and business environments, accountants need to regular check basis, if asset values have been adjusted to recognize the reduction in value, along with adjusting the fair value of specific assets and liabilities.

ALSO READ: What is Asset Depreciation and Why is it Important?

Accountants need to make necessary adjustments in the journal entries and financial statements as required by IFRS and SCOPA.

Industry experts say that it was during the COVID-19 pandemic that accounting issues suddenly increased, because of the prevalent economic conditions and backlogs in supply chains.

Solution

It is imperative that accountants are properly trained so that the correct values of assets and liabilities are recorded, adhering to SCOPA requirements; they should also mention these in the annual financial statements so that there is no risk of non-compliance.

ALSO READ: Importance of Cash Book in Accounting

3. Payroll Errors

Manual calculation of payroll, benefits, deductions, taxes, etc. can lead to several errors.

When paychecks are not calculated correctly, especially if you end up paying employees lesser than what is truly due to them, it can impact the morale and productivity of employees negatively.

Solution

You can outsource your payroll to an experienced third-party service provider, or implement a robust accounting software like Tranquil.

It can help you record the correct number of billable hours logged, and calculate the correct wage due to each employee.

You will also be able to comply with tax regulations as the software will compute the tax owed precisely.

You can generate reports as per categories you set – department wise, designation-wise, taxes deducted etc.

It also ensures that you remit taxes on time.

ALSO READ: Debit Notes vs Credit Notes

4. Cash Flow Statement

There could be classification errors in the cash flow statement, like improper classification to the activity type for interests and dividends both paid and received.

Interests and dividends received are operating activities while dividends paid are classified as financing activities.

Solution

Accounting professionals must be properly trained and stay on top of changing regulations so that they are able to prepare cash flow statements accurately.

ALSO READ: A Complete Guide to Cash Flow Analysis

5. Obsolete Accounting Software

Your legacy software is likely to be inefficient, without giving you data or insights in real-time; this means poor visibility into your processes like marketing and sales, and reliance on manual work and paper trails for recording business transactions.

Further, you may also find it difficult to maintain compliance with regulations.

Older systems are likely to be on-premise installations, which can be inefficient, and be more IT resource-intensive for updating and fixing of glitches on the premises.

With work situations increasingly including remote and hybrid employees, these systems are no longer suitable.

ALSO READ: What Do You Mean by Bank Reconciliation?

Solution

Implement modern, cloud-based, scalable ERP systems with feature-rich accounting modules, which will help you attain the following:

• Automation of regulatory compliance, AP, and international mass payment software
• Accurate forecasts, planning, and cash flow management
• Pay as you use model
• CRM or similar software that can help in tracking your sales funnel more efficiently
• Data visualization technology for BI and analysis of data

6. Inadequate Financial Analysis

Without the right analysis and ideal accounting systems, accounting teams may take up precious time in mundane activities like a book closing, having no time for more important work that could add value.

By performing financial analysis, you can calculate ratios, identify and handle emerging trends, and facilitate informed decision-making for upcoming opportunities.

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

Solution

Implementing robust, cloud-based ERP like Tranquil which automates and streamlines your accounting processes and performs financial analysis will help in overcoming these deficits.

You can get dashboards that display real-time updates of your key metrics, like trend analysis; you can augment this with data visualization software for data analytics or use the inbuilt analytics in Tranquil ERP to generate automated reports for your company data.

7. Lack of Internal Control

As a small business, you may not have the manpower to enable the allocation of separate employees for various tasks to facilitate strong internal control.

Your accounting systems might therefore be vulnerable to duplicate information recording and fraud.

ALSO READ: Everything You Need to Know About the P2P (Procure to Pay) Cycle

Solution

Where it’s not possible to separate duties, ideally the business owner must be involved in approving, in the form of a reviewer of vendor invoices, and also a second signatory.

Finance and accounting teams requires adequate human resources and software to be able to execute their duties effectively and achieve the desired results.

Unfortunately, sometimes, they do not get the resources they require.

8. Custody of Assets

This includes assets recorded in the balance sheet, and those not yet recorded, like cash that is yet to be deposited.
Inventory must be managed properly so that there is controlled access for receiving, storage, custody, and so on, and it must be verified against book records via physical counting.

This also applies to office equipment like furniture, computers, printers, etc.; they must be tagged and counted and tested for possible loss in value that may necessitate a write down.

If there are any discrepancies in fixed asset balance, it could be because the physical count was erroneous.

A cutoff date must be established to record purchases of fixed assets.

If you notice any unrecorded assets, record them immediately by looking up the purchase invoice; in case of the non-counting of an asset, you need to verify if it was disposed of.

The difference between the book value of fixed assets with accumulated depreciation and sale value should be recorded correctly, noting the loss or gain in the sale; if any fixed assets are missing, they should be written off.

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

9. Fraud

Improper internal control, employees colluding with one another to embezzle company finances, manipulation of accounts – these are unfortunately not so uncommon occurrences.

Solution

By implementing modern, secure, and cloud-based ERP that automates your business processes, you can easily catch errors and frauds and nip them in the bud.

Variance analysis can help you investigate the causes for differences between budgeted expenses and actuals.

By carrying out a three-way document verification, analysis of vendor master files, and validating vendor authenticity, you can further strengthen control and minimize risk of fraud.

Always try to segregate duties and tasks of employees: for example, recording transactions, and controlling assets must not be assigned to the same employee.

10. Regulatory Non-Compliance

From data privacy, and security to taxation and sanction lists, there are a number of regulations that every organization has to comply with in each country they operate in.

Non-compliance with regulations can result in huge fines and imprisonment and can spoil your reputation, hitting your business hard.

Solution

Your employees, especially accountants and Finance professionals, must be well-versed with regulations that apply to your company and industry.

Make sure they are trained and familiarized with regulations, as well as company values, goals, and ethics.

They should be made to feel that they are also responsible to uphold the image of the company in public.

Again, the right software will also help.

ALSO READ: What are Backorders?

Using Automation to Solve Accounting Problems

Many of your accounting problems can be resolved, and your accounting processes be made more efficient by implementing the right automation software like Tranquil.

Automation delivers a range of benefits to businesses like ensuring compliance, increasing accuracy, saving time and resources, quicker invoice processing, ensuring timely receipt and payments on accounts, accurate payroll calculation, deciding on discounts to be offered, improved forecasts, enhanced cash flow management, helping deliver better customer service, and the like.

With cloud-based ERP solutions, you can also choose subscription billing so that you pay only for what you use.

ALSO READ: Detailed Guide on ERP in Production Planning

Tranquil Cloud ERP has a robust Finance and Accounting module that helps you do all of this and more, at a budget-friendly price. Do schedule a demo at your convenient time to see how Tranquil can help you resolve or avoid the most commonly encountered accounting problems. We will be happy to answer all your queries.

 

If you are a manufacturer or want to start a manufacturing business, a Bill of Materials is a crucial document that you must know about.

What Is a Bill of Materials (BOM)?

A bill of materials is a detailed list of raw materials, parts, and directions needed for the construction, production, or repair of goods or services.

It is normally present in a hierarchical arrangement, with the finished product at the highest level, and materials and individual parts at the lower levels.

ALSO READ: Why Do Businesses Need Purchase Requisitions?

Understanding a Bill of Materials

A BOM is like an instructional document that is used in the production of goods, and it lists everything that is required to manufacture a product.

You could say that the process of product manufacture and assembly begins with creating a bill of materials.

Making a proper BOM is essential as it helps you make sure that all required components are available when you need them.

This guarantees a smooth and efficient assembly process.

With an erroneous bill of materials, your production may get halted, spiking operational expenses; after all, you need time to find the missing components, begin the next manufacturing order, or to figure out the right assembly process.

There are various types of bill of materials, based on the specific business requirements and project type.

Today we will take a detailed look at BOM – types, what it contains, its advantages, and more.

ALSO READ: Challenges Facing Purchasing and Supply Management

Bills of Materials Display Structure

The information in a BOM is displayed either as an explosion or implosion.

Where the highest-level assembly is cut up into individual parts at the lower levels, it is called an explosion display.

Conversely, when the individual parts at the lower levels are linked to the highest-level assembly, it’s called an implosion display.

ALSO READ: Make to Order vs Make to Stock

Let’s understand this with the help of an example: A car can be exploded into brakes, gears, clutch, steering wheel, seats, indicators, headlights, and so on.

The requirements for the ABS can be imploded into the requirement for the brakes; the chips, control units, and so on can be imploded into the sensors; together, both (along with other components of course) can be imploded into the requirements for the entire automobile.

Structure of a BOM

The structure of information displayed in a bill of materials follows a hierarchy, and the finished product is usually showed on top.

The document includes the quantity and cost of each material or part, descriptions of those parts, product codes, and any additional specifications.

The most commonly used methods to represent information in a BOM are single-level and multilevel.

ALSO READ: What is ABC Analysis in Inventory Management?

1. Single-level BOM

As the name suggests, it only has one level; it’s a simplistic list of each assembly or sub-assembly which is displayed once along with the respective quantities for each product.

Basically, it goes through a single level of assembly to result in a finished good.

It’s easy to create and is suitable for parts, or between assemblies and sub-assemblies.

In the event of a product failure, it can become difficult to identify the parts that have to be repaired or replaced, when you have a single-level BOM.

ALSO READ: What is Physical Stock Verification?

2. Multilevel BOM

This is more time-consuming and cumbersome to develop; however, it provides more details and specifics regarding the parent and child components.

The total quantity of materials needed is mentioned, with the product structure displaying the relationship between parent and child, and between assembly and sub-assembly.

It shows multiple assembly levels before the finished product is ready.

A bill of materials forms the basis for manufacturing planning systems, as the information contained in it includes the fundamental data for resource planning, material provision for manufacture, product costing, plant maintenance, and similar business processes.

In other words, it brings together all the information necessary for building the final product.

Ergo, is used in several departments in addition to manufacturing – design, materials management, and so on.

ALSO READ: Tips For Efficient Stocktaking

Types of Bills of Materials

BOMs are needed not only to build products but also when you need to order replacement components.

It minimizes chances of errors or other issues when you need to repair products.

You can plan better and be more accurate when it comes to procurement orders.

Three main BOM types are engineering, manufacturing, and sales, and then a few other types which are not used by all businesses.

ALSO READ: What is Product Bundling?

1. Engineering BOM

This document describes and details the finished product design, and contains assemblies and parts designed by the engineering department, along with every alternative and substitute component numbers as shown in the diagram notations.

In every line of the BOM, you will find information like product code, name and number of the part, its revision, the product features, description, UOM, quantity, measurements, weight, and any other specification as required.

The Engineering bill of materials is usually created by engineers using a CAD diagram, and there are often multiple BOMs for a single finished product.

This document displays the parts structure from a functional viewpoint.

ALSO READ: What Is Cloud Data Protection?

2. Manufacturing BOM

This lists every component, assembly, and sub-assembly necessary for the production of a finished product that can be shipped; this means it includes packaging materials that are needed to deliver the item to the end user, or customer.

It mentions the processes that need to be carried out before the product is completed, and has every bit of information needed for all activities connected to manufacturing.

In other words, information regarding components that have to be processed before assembly, with an explanation of how the different parts are connected to one another.

It is an important element in the management of the product’s lifecycle.

This BOM is shared with ERP, materials requirement planning, and other business systems which are utilized by the organization for the procurement of materials and manufacture of the final product.

ALSO READ: Difference Between Procurement And Purchasing

3. Sales BOM

This document contains details of the product before assembly in the sales stage, and the list of finished goods and parts needed for its production are mentioned distinctly in a document called the sales order.

The finished goods are managed as sales items instead of inventory items in this BOM.

Though there is a typical structure for a bill of materials, there are likely to be slight variations in each type of BOM when it comes to how much detail it contains and the variation in structure.

While Engineering BOMs are more likely to list components that perform a specific product function, a manufacturing BOM will list every item that is required to manufacture that product.

There are other, less common BOMs:

4. Configurable BOMs

If you manufacture highly customizable products, you need configurable BOMs as they will help you fulfil tailored specifications of customers, and identify the raw materials, materials for labeling, packaging, and so on.

Assembled computers, automobiles, and certain hardware or software are examples where such BOMs may be necessary.

ALSO READ: ERP Configuration vs. ERP Customization vs. ERP Personalization

5. Production BOM

This is essentially the earlier half of the manufacturing BOM which contains a list of parts and subassemblies required to product the parent item, and forms the foundation for a production order.

6. Assembly BOM

As you may have guessed, this is for the latter half of the manufacturing BOM where the parent product is listed as a sales item instead of an inventory item (similar to a sales BOM)

ALSO READ: Understanding Different ERP Systems

7. Template BOM

This is just a standard list of parts for products that require regular servicing.

The parts denote the sub-parts of the object to be serviced.

This BOM is useful in tracking the sub-parts that were replaced, repaired, or services.

8. Software BOM

This BOM is used by software development firms to list what tools and technologies are required to build certain software systems.

This could include backend technologies, extensions, frontend technologies, databases, programming languages, and so on.

These BOMs help developers to make sure that various software elements are secure, updated, and can function together cohesively.

ALSO READ: Top Trends of ERP System For The Future

What Do You Need to Create an Effective BOM?

Now that you’ve seen what is a BOM, and what types are there, let’s see how to build one:

• Different level numbers signify where the part fits in the hierarchy of the BOM
• Part names provide information about them and help in identification
• Part numbers are a shorthand method of parts identification as they denote information about the part. These are similar to SKUs used to identify product variants and are hence also called intelligent part numbers. Intelligent numbers have alphabets that signify something specific; non-intelligent numbers have just serial numbers which carry no further meaning.

ALSO READ: What is SKU Rationalization?

• Manufacturer’s names also help in parts identification
• Part phase helps identify the specific phase of the product lifecycle where the part is used – design, revision, and so on.
• Quantity indicates how much of a part is required, along with a UOM for each type of part, like a number, grams, liters, and so on.
• Alternatives signify if a component can be changed for another in case the original is not available.
• Description of each component which enables the differentiation among similar components by measurements, colors, and so on.

ALSO READ: Guide on Stock Adjustment and Stock Transfer

• Priority analysis which describes crucial components and helps in the prioritization of their purchase; like, parts that are more expensive and take more time in reaching, may be prioritized.
• Procurement specification defines the manner of purchase and manufacture of parts.
• Notes and/or comments to record unforeseen changes and notes of the project progress, including diagrams or pictures of assemblies and parts.

ALSO READ: What is Goods Received Note and Why is it Important?

What are the Advantages of Using a BOM?

A bill of materials brings greater accuracy and efficiency to the manufacturing process, by laying out an in-depth strategy and design which your teams can follow with ease. When a BOM is well thought-out and developed, it can help in:

• Records maintenance
• Monitoring and planning materials requirements
• Controlling budgets
• Planning raw materials procurement
• Estimating cost of materials
• Inventory management
• Sticking to a time-table or schedule
• Being on top of shortage of materials, speeding up charges, and managing downtime efficiently whether planned or unexpected
• Wastage reduction
• Recognizing the reasons for the failure of products
• Quick replacement of defective parts
• Identification of software components’ vulnerabilities
• Enhancing the security of your supply chain.

Additionally, bills of materials help to make sure that third-party contract manufacturers are being effective and accurate in their production.

BOMs are very useful for businesses that implement lean production methods and processes that are based on continuous improvement.

The chief aim of lean manufacturing is waste reduction, and a BOM provides a roadmap that helps you in achieving that.

ALSO READ: HCM vs HRM

As a manufacturer, a bill of materials is absolutely essential; but it may be a bit tiresome for you to have to do it from scratch for every product. This is where Tranquil Cloud ERP comes in. Our cloud-based business software has robust inventory management, procurement management, and production management modules that will automate and streamline all the mundane tasks you have to perform, and ensure greater accuracy, efficiency, reliability, and productivity. This goes for the Bill of Materials too. To see for yourself how it works, schedule a demo of our software right away!

 

Have you ever really wanted to buy a product, either from the physical store or online, only to be told that it is sold out? I’m sure most of us have faced this frustration at some time or the other.

On the one hand, it signifies high demand and sales for the business, but on the other, it can lead to unhappy customers and lost sales – it could even translate into lost customers.

Which is why, preventing or minimizing the possibilities of stockouts should be a priority for businesses who want to retain customers and keep them happy, and increase their revenues.

ALSO READ: Effective Inventory Restocking Methods

What Is an Inventory Stockout?

As the name suggests, a stockout simply means that a particular item or items are no longer in stock because they got sold out, and hence are unable to meet consumer demand for them.

Stockouts can occur at any point in the supply chain, for a number of reasons.

Delay in delivery of raw materials by the vendor, unforeseen demand spikes, inefficient inventory practices, and so on.

It is essential that the status of the availability of the product is reflected across every sales channel when a stockout happens.

This way, you can at least prevent customers from placing orders or adding to their carts.

In case the customer does place an order, pays, and then the system shows that it is not in stock.

You should be able to offer a satisfactory resolution to the customer like a refund, an alternative item, or a promise to dispatch the product as soon as it is back in stock.

When you are upfront with the customer, they will appreciate the fact and will be more likely to stick with you.

ALSO READ: What is an Inventory Control System?

Why Do Stockouts Happen?

The most common reasons for inventory stockouts are lack of planning and human error; however, circumstances outside your control can still cause this situation regardless of how prepared you are.

Let’s see them in brief:

1. Wrong Forecasts

Incorrect predictions are bound to lead to either overstocking or stockouts.

It is critical that your demand and inventory forecasts are as accurate as possible so that either situation is avoided.

With precise forecasting, stock shortages or excesses can be minimized even if there are unexpected shifts in demands or problems in the supply chain.

2. Incorrect Records

Not counting properly, or entering the incorrect number during manual inventory management of misplacement of items that were delivered to the warehouse, etc. are the main reasons for incorrect inventory counts.

Sometimes, technical problems also cause improper counts; especially when a business has several sales channels but inventory is not updated across all of them in real-time.

ALSO READ: Common Inventory Management Mistakes to Avoid 

3. Vendor Delays

Delays from the supplier, like delivery delays of raw materials or parts, can cause delays in your production; delays in delivery of finished goods cause stockouts and an inability to fulfil consumer demand.

4. Manufacturing Issues

Shortage of labor, machinery downtime or inefficient planning can also cause delay in production in addition to vendor delays, leading to stockouts.

ALSO READ: Why Do Businesses Need Purchase Requisitions?

5. Logistics Problems

External circumstances like calamities, riots, etc. can damage production facilities, raw materials, and finished goods; vehicular accidents or breakdowns can lead to delays in delivery, while mechanical problems can delay production schedules.

These are not in your control but if you face frequent issues with vehicles, you may need to investigate the causes and resolve the issue with maintenance and overhauling.

How Can Businesses Prevent Stockouts?

The consequences of stock out in inventory management can be far-reaching and include lost sales and customers, bad reviews, and a dent in the brand image.

While several matters are out of your hands, you can implement some best practices to prevent or minimize the occurrence of these events.

ALSO READ: Difference Between Procurement And Purchasing

1. More Accurate Inventory

Regular tracking and updating of stock-level records are crucial, but doing it manually can cause errors.

However, if you use Tranquil inventory management software you can automate this process so that updated data can be shared across the organization and all sales channels in real time.

2. Implement an Effective Counting System

Closing operations to take a complete inventory count is impractical – though you may get an accurate figure, you lose sales for that day.

Instead, a cycle counting system, where you count and check a specific set of SKUs as scheduled, is likely to be more efficient and valuable.

Your inventory department can carry out audits and verify if physical counts match the records in your inventory system or spreadsheets.

ALSO READ: Ways to Improve the Procurement Process

3. Set Reorder Levels

It is imperative to order in time to prevent or minimize stockouts.

A reorder level is the inventory level (in terms of weight or number) at which you must place orders for replenishing that item so that you don’t get stocked out.

If you wait till the stocks go lower, you may not be able to guarantee that the products will be delivered in time to fulfil consumer demand.

By calculating reorder levels and setting alerts that are automatically sent to relevant personnel, you can manage your inventory much more efficiently.

ALSO READ: Importance of Inventory Reorder Point

4. Calculate Lead Times

Lead time is simply the time taken for an order to be delivered at your warehouse once you have placed it.

It is a crucial factor to think about when you evaluate vendors both current and potential.

Obviously, the shorter the lead time, the better, as it leads to reduced carrying costs; it’s also beneficial when you have a sharp rise in sales.

ALSO READ: Debit Note vs Credit Note

5. Forecast Better

Being able to predict consumer demand is a quintessential business craft; granted, consumer demand is prone to shift drastically and suddenly, and can render all your calculations useless.

But on average, if forecasts are scientifically made, it can help you maintain optimal inventory stocks, prevent overstocking or stockouts, and save expenses.

A reliable software system like Tranquil will factor in a wide range of elements like seasonal demand, consumer trends, lead times, and so on, and help you be more precise in forecasting.

ALSO READ: Supplier Aging vs Customer Aging

6. Do Demand Planning

Demand forecasts generally consider factors like consumer trends and cover 18 to 24 months; they form the basis of the overarching process of demand planning.

It is a step ahead of forecasting as it considers supply chain and inventory management as well.

To put it simply, forecasts are used by demand plans to craft strategies for sales and operations so that the business can plan more efficiently regarding the quantity of products to be purchased or manufactured, and when to do this so that consumer demand can be fulfilled.

Precise inventory data is critical for this to be successful.

7. Maintain Safety Stock

Keeping inventory and holding costs down being a priority for most businesses, they now favor zero inventory or just-in-time inventory methods; however, this poses the risk of stockouts unless you have vendors close by who can supply in the least possible time.

That is why it is prudent to maintain some extra stock as a buffer and prevent stockouts.

Tranquil ERP can help you calculate your ideal safety stock.

8. Integrate Inventory Platforms

To have accurate inventory figures across your sales channels, it is imperative that you sync the numbers throughout those channels.

Without that, products that are actually sold out may be shown as in stock, and a customer may place an order, only to be told at the end that it’s out of stock.

ALSO READ: How to Understand and Manage VAT for Your Business?

9. Use RFID Technology

This is a wireless technology that transfers data and enables warehouse staff to track inventory in real-time using radio frequencies.

Goods are today sent with data embedded in RFID tags attached to them, with each tag storing info that is sent automatically to a central database.

Every time the stock in and stock out happens – when products are stored, sold, picked, and shipped, this data is automatically updated; this means, the correct figure is reflected at the physical store as well as the online store of that merchant.

This reduces human error, improves inventory counts, and subsequently minimizes stockouts.

ALSO READ: What is Asset Depreciation?

10. Read Stockout Patterns

It is impossible to correctly predict consumer demand at all times; yet, you can find trends in stockouts.

With regular audits and monitoring, you can recognize when peak stockouts happen.

Let’s say the same items get sold out every month in the same week – you can either change your reorder levels, reorder quantities, or even the suppliers, to prevent this.

ALSO READ: What is Order Up to Level in Inventory Management? 

11. Study Consumer Trends

Historical data and trends are important for demand forecasts; potential and emerging trends are just as important to ensure that you have sufficient quantity on hand to meet consumer demand.

You also need to minimize fading trends to avoid dead stock.

12. Observe the Supply Chain

Raw material shortages lead to a stoppage in production, and therefore, stockouts – this can be across the supply chain and is felt hardest by retailers.

While vendor shortages can’t be stopped, they are often predictable.

Studying the trends can help you mitigate issues caused by stockouts.

Say, you track the frequency of delays or shortages by a certain vendor – you could find another one.

ALSO READ:  Guide on ERP in Production Planning

13. Build Strong Vendor Relationships

Forge strong connections with vendors and keep them appraised of your requirements, especially when you are expecting a demanding hike.

Vendors will be able to inform you if they can meet that demand or not, giving you time to find alternatives if needed.

14. Consider Consignment Inventory

If your consumer demand is volatile, think of consignment inventory to avoid stockouts.

In this system, vendors keep stock with them till the retailer sells it.

This way, products are always available when needed, avoiding the scenario of stockouts.

Retailers also have less risk as they only need to pay for the product once they sell it, and less expense as there’s no carrying cost.

Retailer-vendor communication has to be transparent and accurate to avoid sales of items sold out at the vendor’s side.

ALSO READ: Important ERP Modules and Functions

15. Using a Vendor-Managed Inventory System

In this system vendors and retailers share the responsibility of managing inventory, and a certain quantity of inventory of specific products is maintained at the vendor’s end.

Lead times, reorder levels, etc. are managed by the vendor, so that the retailer is free of that worry.

Of course, you should enter into this agreement only with trusted vendors.

ALSO READ: What is Vendor Managed Inventory and What are its Benefits?

16. Liquidate Excess Inventory

This may sound contradictory but it’s not.

By selling off excess stock, you can make space in your warehouse for items that are selling fast.

Bundle them with quick-selling products or offer them at a discount; you will reduce carrying costs and have space to order more of your best sellers.

ALSO READ: What is Negative Inventory?

While there is always a possibility of inventory stockouts, you can try a variety of measures to reduce their occurrence. One of the best things to do is invest in inventory management software like Tranquil. It will streamline your entire process and give you more accurate data, forecasts, and transparency. Do schedule a demo at your convenience to know more about how our software works.

 

In 2022, the business world witnessed several changes in the way accounting was done; these changes, while not being jaw-droppingly exceptional, have set the tone for several more innovations for the coming year.

Technological advancements are happening in every field, and we can see the increased adoption of automation.

While tech has not yet brought in the kind of sea changes it has in other fields, there is no doubt that even this arena is fast moving towards greater automation and adoption of innovative technology.

The emergence of cloud computing has increased the possibilities of adoption for accounting.

ALSO READ: ERP Trends 

Drive Towards Industry Change

In 2019, a global survey of accountants was conducted, in which over 3000 respondents participated; a whopping 905 % of them were of the opinion that by the next decade, accounting will undergo a major cultural shift.

This shift is being caused by business services, hiring practices, remote working practices, and emerging technologies.

Another surprising result of this survey was that the majority of accountants would begin to hire staff from divergent backgrounds, and those with conventional accounting backgrounds may not remain the favored breed anymore.

They also believed that in spite of the various training programs that are available for accountants, they won’t suffice to bring them up to speed with the accounting trends for the next decade.

Sounds interesting? We are sure you want to know more.

Without much further ado, let us now look at the accounting trends for 2023.

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

Accounting Trends 2023

1. Cloud-Based Accounting

This is probably one of the most important accounting industry trends.

Most businesses have shifted to the cloud for business processes like ERP, CRM, etc. as they are secure, quicker, reduce downtime, and hence are more profitable.

The same goes for accounting; with accounting solutions being hosted on the cloud, more and more companies are discovering the convenience of anytime, anywhere access of their digitally hosted system.

The data access not only allows you to view the data, but also to share, edit, copy, and otherwise work on the files and collaborate, subject to your role and responsibility in the organization.

It allows teams to track inventory, sales, expenses, purchases, and payroll, among other things.

Most accountants are happy with cloud-based software as it streamlines their workflows and improves the quality of their work and organizational data.

ALSO READ: What is Job Costing?

2. Offshore Staffing And Remote Work Setup

In the pre-COVID-19 pandemic era, the percentage of remote workers was probably around 10 – 15% globally; however, this figure shot up radically to over 80% during the pandemic.

Even today, many employees prefer to work from home as it saves them commuting time, and they are more productive as the comfort of working from home is incomparable to working in an office atmosphere.

Strangely, there is unemployment among accountants in spite of the requirement for accountants being very high.

This means that several companies are missing the opportunity to hire talented accountants.

To make up for this paucity, finance professionals are moving towards technology to maximize profits for their businesses.

What emerges in this scenario is remote working or work from home.

ALSO READ: Debit Note vs Credit Note

Remote work, in combination with technology in accounting, like digitization and cloud adoption, has helped reduce expenditure significantly, and in optimizing the business progression too.

This trend has been slightly extended with companies now hiring additional employees offshore; some are deployed in remote work configurations after being hired at the office as well.

This model is putting organizations on the fast path to growth; especially for accounting forms, they are able to derive more benefits from this structure in comparison with the conventional working framework.

Based on evaluations and predictions, the offshore and remote working trend is likely to not merely exist, but exponentially increase and thrive in the foreseeable future.

3. Digitization with Accounting Software

There is increased digitization in accounting, and we will see this trend skyrocketing in the coming months.

More and more organizations prefer accounting software rather than manual systems, as the software systems are robust solutions with advanced features and user-friendly functions.

Tranquil Finance and Accounting Software is one such solution that offers numerous functions that help streamline financial accounting, reduce manual effort, minimize errors, and help to save money.

ALSO READ: Detailed Guide to Cash Flow Analysis

4. Big Data

Financial experts and accounting professionals have always depended on big data for taking critical financial decisions.

Technology has played a vital role in the transformation of important internal data sets into the secure and dynamic analysis of data.

It has always helped in converting those assessments into actionable insights.

Thanks to the slow but continuous improvements in the finance sector, there is higher possibility now than ever for data to become more proactive.

This fact is a major catalyst for the changing future of accounting.

5. Data Analytics

While Big Data has been a critical tool with immense potential for financial experts, data analytics is even bigger, with even greater possibilities.

By implementing data analytics in your accounting systems, you can instantly discover inefficiencies in operation, build precise models of forecasting, gain beneficial insights about your finances, and also stay abreast with the progress made by your customers.

By 2023, data analytics will become commonplace as there will be a burning requirement to separate different service values from challengers, and to make precise, data-based decisions, and judgments on that basis.

The main reason being that data analytics is invaluable in deciphering intricate, complicated datasets, and in recording important insights.

It is also believed by industry experts that the rules and frameworks for reliable data gain are set to undergo a significant transformation by 2023.

ALSO READ: What is Budget Variance Analysis?

6. Automated Accounting Process

Automation has radically transformed the way most businesses in various industries function, and accounting is not far behind.

Comprehensive solutions are today available for the whole management process, and this has helped in minimizing errors and bringing clarity to every phase.

As accounting automation depends on computers and servers, many businesses unfortunately get trapped into monetary scams and are vulnerable to cyber security threats.

Ergo, it is essential the auditors in the organization verify the accuracy of the data and financial inputs.

This will help the employees to feel more secure about their jobs and reassure them that they will not be replaced by bots.

ALSO READ: Everything You Need to Know About the P2P (Procure to Pay) Cycle

7. Agile Accounting

This is definitely right up there – one of the biggest trends in accounting for the future.

Agile accounting means how well you react to change and adopt the latest trends seen in the market.

If you are able to evolve rapidly, you will certainly gain a distinct competitive edge.

If you want to succeed and maintain your pole position in the market, it is imperative that you welcome new trends as quickly as possible.

But how can you apply the Agile methodology to accounting?

Agile Accounting Means:

• Managing your time efficiently so that you are able to respond to unexpected changes quickly
• Defining goals and working towards them
• Planning sprints for each fortnight
• Analyzing the successes and failures of every sprint
• Taking advantage of the latest technologies and trends
• Increasing your workforce through means like remote workers, offshore hiring, and more
• Leveraging cloud-driven solutions to have secure, flexible access,

In short, you need to be proactive and be ready to handle anything that the market throws at you.

ALSO READ: What is Asset Depreciation and Why is it Important?

8. Outsourcing Accounting Functions

A novel method of progressing in the accounting field is outsourcing; this helps accounting firms to focus on more critical value-adding tasks and leave the petty issues to others.

When the work becomes too tedious and monotonous, businesses outsource the job to professional firms and can be more productive and increase profitability by making the best use of their resources.

In fact, outsourcing is one of the quickest-growing sectors in accounting, thanks to this fact.

Organizations are beginning to realize that they can get more reliable and accurate accounting services by outsourcing to professional service providers.

It also helps chartered accountants to provide outstanding services to their customers, adding more credibility to their firm and building trust.

ALSO READ: Supplier Aging vs Customer Aging

9. Blockchain

Blockchain has almost revolutionized accounting as we know it.

It has brought down the expenses related to ledger maintenance and reconciliation.

Additionally, blockchain technology now makes it possible for accounting professionals to have clarity and proper visibility regarding their organization’s obligations and the resource availability.

A large number of wallets are being created for blockchain transactions; in the US alone, the spend has touched 1.1 billion US dollars.

No wonder then, that it is definitely a trend that you should keep a watch on; industry experts predict that the day is not far when blockchain sees prolific global acceptance.

ALSO READ: What Is Reverse Factoring?

10. Value-Based Pricing

An accounting firm needs to understand the effect of rising charges on their business.

It can be pretty detrimental, and could even cause them to shut shop.

Value-based pricing, however, uses a tactical approach, where revenues are increased by fine-tuning the price to the amount that is anticipated, rather than its historical amount.

A value-based pricing model is ideal for delivering price certainty for accountants as well as their customers.

Additionally, accounting professionals will be able to make better use of their time and be more productive.

ALSO READ: What is SKU Rationalization? 

11. Advisory Services

It is essential for every business owner to stay up-to-date with the latest developments in their industry, the technologies that are emerging, market trends, and so on.

Savvy business owners avail the Advisory Services that guide businesses on how best they can leverage the new technologies and optimize the accounting business, or how to get the most out of their existing accounting software.

Advisory services provide accurate and valuable insights and help boost revenues significantly.

Final Thoughts

These are the trends that most industry experts predict will dominate 2023, and in the years to come in the near future.

The onset of these changes is not sudden, but it is happening slowly and steadily and creating a quiet revolution in the accounting field.

Tranquil Finance and Accounting Management Solution is a cloud-driven, comprehensive, secure, and efficient solution that helps you streamline and automate your accounting procedures, allowing you to tackle complex and value-adding tasks. Tranquil ERP is an integrated solution that also handles your inventory, sales, HR, procurement, and asset management so that you can free your resources from performing monotonous and cumbersome work. Do schedule a demo at your convenience, and we will be happy to show you how Tranquil works, and how it can benefit your business.

 

Inventory restocking refers to the way you replenish goods when you need it the most, based on current demand and sales predictions for the near future.

When properly instituted, you can make sure that you stock adequately so that you don’t miss a sales opportunity and don’t overstock and end up with dead stock and high carrying costs.

Effective Inventory Restocking

Restocking is not merely ordering products from a vendor and putting them on your warehouse shelves.

You have to have a very clear picture about various things like current use (sale of production) forecasted demand, the time it will take for the products to be delivered, and so on.

While it is a very important element of inventory optimization, it can become challenging if you can’t predict the future.

Demand shifts can take place because of festivals or seasons, influencers endorsing your product, competitors coming out with similar products, or any other reasons.

This means, anticipating these shifts is not an easy task.

You can still restock inventory strategically depending on your inventory knowledge.

ALSO READ: Top 8 Inventory Reduction Strategies

When to Restock

Optimizing the restocking cycle depends to a great extent on when and how often to restock inventory.

If you implement technology like Tranquil inventory management, you will be able to track inventory in real-time – as your inventory is likely to be continuously moving through your supply chain, and delays are common.

Tranquil will help you calculate optimal reorder levels, and notify you when stocks touch that level.

Reorder levels have to consider the lead time – the time taken for those goods to reach your warehouse from the time you place the order.

ALSO READ: What is Inventory Reorder Point?

What to Restock

As a retailer either online or brick-and-mortar, you have to consider how many variants (SKUs) you sell, and see what items sell quicker or more than the others.

This will help in inventory optimization and restocking depending on the demand for those products.

For example, if blue shirts of the same brand and design sell more than yellow shirts, it doesn’t make sense to stock or order 10 each of both; you may want to order 30 blue shirts and 10 yellow shirts.

If there are any variants that are very slow-moving, you can consider discontinuing them and save on carrying costs.

Tranquil inventory tracking feature gives you comprehensive visibility into inventory levels and shows where the demand is highest.

How to Restock

To know how you can restock inventory quickly and effectively, you need team support and the right technology.

Inventory restocking is not merely reordering materials; you need to think about how much storage you have, the efficiency of your receiving process, how fast you can get the products ready to be sold, and so on.

When your business is scaling up, you may need to increase your order size, but you have to think whether you have the space for the additional stock and if you’ll need major reorganization to be done.

This can take up a lot of time and resources.

ALSO READ: What is Order Up to Level in Inventory Management? 

Returns

How effectively you manage your returned products also affects your inventory restocking process.

You must process returns quickly so that you understand how many of those items can still be sold, and therefore can go back on your shelves, and how many have to be returned to the vendor or discarded.

What Happens When You Don’t Restock Inventory Efficiently?

Inventory restocking is important but for growing businesses it is critical.

Weak strategies can negatively impact a business at its core.

ALSO READ: Why Use a Barcode For Tracking Inventory And Assets?

Inventory Stockouts

When you don’t reorder stock at the right time, you may face stockouts, and this can prove to be very expensive – especially if it happens frequently.

You may have customers cancelling orders, and hence lose sales, and end up losing the customer for good.

They may even leave negative reviews online.

There are several ways you can avoid this, and one way is calculating your safety stock; by maintaining safety stock, you can have a buffer in case of extra demand or delayed deliveries, and fulfil customer demands.

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Overstocking

Inventory management methods all have a common goal – optimizing inventory levels.

This is basically a balancing act.

Overstocking is just as problematic as stockouts; while you will be able to fulfil demand, you will have too much left over, eating into your profits, tying up your working capital, hampering your cash flow, and taking a toll on your budget, and resources.

Additionally, you run the risk of ending up with obsolete stock that you can’t sell anymore.

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High Costs of Order Fulfillment

Poor stock management methods can also cause excessive fulfillment costs; after all, the efficiency of inventory restocking affects everything from receiving deliveries to shipping the products.

Supposing, a customer orders a few items from you but a particular item is out of stock.

Now you may have a split shipment situation, where one item may be fulfilled at a later time, or different location.

With two (or more) shipments, you incur higher shipping expenses.

If you have multi-location inventory storage, you must know where to store specific SKUs and in what quantities.

This can help you in having the correct inventory at the correct location to fulfil demand.

Shipping strategy can be optimized by maintaining adequate stock to meet demand in important locations; you can also bring down lead time and shipping expenses.

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Effective Inventory Restocking Methods

Now that we know what problems you can face with an ineffective restocking strategy, let us see what methods to follow to prevent them from happening.

First off, it’s important to implement robust inventory management software that will help you streamline inventory, and manage orders and shipments effectively.

Automation can help in efficient inventory tracking and eliminate human errors and save time.

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1. Periodic

This is ideal for small businesses with small order sizes.

Here the cost of goods sold and the inventory are not updated in the company’s books immediately as they happen, and goods are restocked at regular intervals like monthly, quarterly, or annually.

So, even if the inventory suddenly becomes low, restocking will only take place at the predetermined time; conversely, even if a certain item is in stock, it will be ordered again.

This is a simple method that needs little data but you run the risk of stockouts and overstocking.

Without proper data, decision-making becomes tough.

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2. Top-off

This is used by businesses that stock multiple quick-selling SKUs and is also called lean time replenishment.

It can ensure a high inventory turnover rate and reduce stockout risks while keeping low days sales.

Retailers restock goods to desired levels at all locations whenever there is a spike in demand.

In slow seasons, picking staff have fewer orders to fulfill and can hence be redirected towards restocking.

This method helps boost efficiency during the busy seasons.

3. Profit-based

By measuring the profitability of an SKU, you can decide whether you want to restock it, and how much to restock.

You can stock higher amounts of more profitable SKUs so that you always have enough to fulfil demand.

When you can track SKU sales and profitability accurately, you can use this method.

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4. Demand Restocking

As the name suggests, this method means restocking depending on demand forecasts for the future.

Industry experts recommend that to avoid stockout risks during demand surges, it is better to maintain adequate safety stock.

Tips for Restocking Inventory

We have established that ill-conceived restocking strategies can negatively impact your business.

You stand to lose sales, incur high carrying costs, lose customers, and experience reduced brand loyalty.

You can follow these tips on inventory restocking optimization so that you mitigate risk while fulfilling demand.

1. Inventory Management Software

Restocking becomes especially challenging when you expand your business and add more warehouses, sales channels, products, and locations.

The right inventory management software can streamline your business processes from end to end, save time and money, and minimize errors, with automated inventory tracking, providing real-time data, and overall visibility into your inventory at every phase in the supply chain.

This facilitates data-driven decision-making about restocking.

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2. Leverage Inventory Data

Data is power. And it is critical to have this power at your fingertips.

With inventory data, you can study past trends, predict demand for the future and regulate your inventory levels based on that.

Let us say that you routinely run short of stock around the festive season; you can use data from the last year pertaining to that period, and calculate how much additional inventory you will need to maintain to fulfil the demand for the upcoming festive season.

You will also need to consider your current growth rate to get an accurate figure.

Inventory data can also be used for inventory reporting, or to decide the timing of your next marketing campaign, like a sudden sale to get rid of products nearing expiry.

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3. Conduct Regular Inventory Audits

An inventory audit is a process of verifying the financial and inventory records as in your books of account against the actual (physically counted) inventory levels, which will allow you to have thorough visibility into your inventory.

It will help you in measuring profitability, checking for inventory shrinkage, recognizing inefficiencies, and in reordering stocks accordingly.

All you need to do is just physically count the stock you have on hand, and see if the figures match what you think you have as they are recorded in our books of account.

You can streamline inventory on all levels with regard to the supply chain.

It is especially important to be clear on the kind of inventory to be bought and when it has to be bought.

By carrying out inventory audits, you can see how effective your inventory strategy has been, and you can also get a better idea about the calculation of your profitability.

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Conclusion

Undoubtedly, having a robust inventory restocking strategy is crucial, especially if your business is on a growth trajectory.

How much you want to stock, when you want to replenish, from where, how often, and more, depends on numerous factors, and they differ from industry to industry, and from business to business.

You have to consider the available space, human resources, lead time, current demand, projected demand, and a whole lot of things.

One of the most convenient and quickest ways to achieve optimal inventory restocking is by implementing reliable and efficient inventory management software like Tranquil.

It provides all the data regarding your inventory that you need to make decisions.

After all, the more data-driven your inventory management, the more efficient it is likely to be.

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Tranquil ERP has feature-rich modules that will help you streamline other business processes too. Do schedule a demo so that we can walk you through the software and help you see how it can benefit your business.