Month: May 2023

To ensure that your manufacturing process is successful, it is imperative that your production schedule is properly designed, with optimal workflows that minimizes wastage and reduces expenses.

There are several ways in which companies schedule manufacturing runs – from the conventional large-scale production to small-scale production scheduled only according to demand.

Batch scheduling is one of the oldest production approaches, and is still commonly used.

This method involves planning production of items in groups instead of a continuous cycle of production or individual scheduling.

ALSO READ: What is Batch Picking?

What Is Batch Scheduling?

Let’s understand what batch scheduling is in a little detail.

In batch scheduling, products that are the same, are grouped together as batches.

All the production process steps are applied to a group of items simultaneously.

Once the entire batch is done, it is moved to the next stage.

It is extremely important for manufacturers to decide the timing and method of scheduling production runs when planning production.

They have to think about factors like cost, raw material availability, machinery required, speed, throughput, and so on.

Manufacturers often choose batch scheduling as it allows them to manufacture a specific quantity of a type of product without changing the manufacturing setup and processes, lowering costs and creating economies of scale.

ALSO READ: Route and Van Sales

Batch Scheduling Explained

We saw how batch scheduling refers to clustering similar items together to be produced in a run, instead of a continuous process or one at a time.

Companies often find this method to be more economical and are able to exert better control over the quality.

Batch scheduling is preferred by manufacturers of plastic, steel, chemicals, papers, apparel, cosmetics, food and beverages, paper, biotech products, FMCG products, or any others where multiple products are manufactured using the same raw materials or machinery and settings.

Here, companies often need to produce different types of products using the same processes and machines.

However, it can be more costly and time-consuming to keep changing the raw materials, machine settings, or components for different orders.

Therefore, the company will manufacture a batch for a specific item for a specific time period, and then make the changes for the next product type.

ALSO READ: What is Negative Inventory?

How Batch Scheduling Works?

A group of a specific item undergoes a process in the production stage before the batch is moved to the next stage.

Let us assume that it’s a garment factory and the first stage is dyeing fabric, and the second is cutting it into the requisite sizes and shapes.

This is very different from conventional demand-driven production where one item was manufactured from start to finish.

With batch scheduling, production can be streamlined.

This is achieved by creating a BoM or product recipe for a specific product, the order in which the ingredients are to be added and the processes they have to go through in order to get the final product.

Based on the preferences in sales orders, every batch could be different, allowing manufacturers to change the specifications, and adjust the settings to make place for various sizes, shapes, colors or other changes from one batch to the next.

Let us take the example of a packaged snacks manufacturer who makes potato chips in five flavors.

They most probably use the same equipment, some of the raw materials, and packaging components for the entire product line; there will of course be slight variations in the packaging and ingredients used.

Here batch production can be employed efficiently rather than going on changing machine settings, raw materials and other inputs to manufacture the different chips as required.

The manufacturing line is configured to produce a specific quantity of one type of chips, and it is produced in a batch.

When that is completed, the raw materials, inputs, and settings are changed to produce the second batch of chips, and so on.

ALSO READ: ERP Software to Enhance your Purchase Management

Benefits of Batch Scheduling

This efficient method of manufacturing delivers benefits even after production.

Let’s take a look at some of the important advantages of batch scheduling:

1. Increased Productivity

When multiple products have to be manufactured on the same line, you can employ batch scheduling and avoid continuously toggling between the different equipment controls.

With batch scheduling, you can reduce the rework required to manufacture products by organizing the production around a batch of similar products at one time, and making the necessary changes before the next batch of items is put through the line.

2. Decreased Costs

Concentrating on manufacturing one batch at a time is often more cost-effective, and production can be scaled easily, bringing down the cost of individual product production.

This also helps to minimize delays, eliminate bottlenecks, and reduce the cost of manufacturing as compared to manufacturing them individually.

Batch manufacturing helps achieve economies of scale, as they utilize labor and processes capable of executing production of large groups of items at the same time.

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

3. Better Tracking

Batch scheduling allows companies to track batches efficiently; batch tracking is a practice in inventory management that puts together items that have similar characteristics of production like raw materials, accessories, parts, expiry dates, manufacturing date, and so on.

Batch tracking facilitates greater inventory control, better post-sales service, enhanced delivery sequencing, and so on.

Manufacturers can also track these products easily and efficiently throughout their life cycles, streamlining communication about defects detected later, and can resolve or recall them easily.

4. More Agility

Batch scheduling helps companies to respond to sudden trend changes in the market and to seasonal demands for products in an agile manner, without having to carry out production continuously.

Companies that do batch scheduling can manufacture different products in the correct quantities.

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

5. Enhanced Quality Control

It is much easier to manage quality at different stages of manufacture when batch scheduling is followed as you only have to concentrate on one item at a time, and not mass produce goods.

Any batch that is found to have defects can be eliminated; unlike in the conventional method where a huge number of products would have had to be discarded, here you only need to discard that specific batch.

6. Less Wastage

When you concentrate on manufacturing one type of a product at a time, you can ensure that you don’t waste much during the process.

The production of slow-moving products can be easily scaled down immediately, ensuring you have small and manageable inventory levels.

ALSO READ:  Ways to Improve the Procurement Process

Drawbacks

As in everything, batch scheduling does have some disadvantages as well.

• As this method involves a sequence of steps that are executed one after the other rather than simultaneously as in mass production, batch scheduling is likely to increase production time.
• The machines have to be stopped between batches as quality control checks are conducted before producing the next batch – and this could mean extended machinery and labor downtime.
• In on-demand production, you may be able to detect an anomaly after producing a single item but if you find it during a specific step in batch production, you may need to get rid of the entire batch.

ALSO READ: Cost Effectiveness Vs Cost Efficiency

What is Ideal for Batch Scheduling?

Some industries and specific products are more suitable for batch scheduling and manufacture than others.

For example, if you want to manufacture a large number of items with low variation, this approach is a great fit.

It is not suitable for customized products and those produced in low volume.

In spite of this, a large range of businesses employ batch production – from chemical and pharmaceuticals to apparel and cosmetics, to steel and chemicals and more.

In all these industries, multiple types of goods can be produced using the same equipment or facilities.

Consider these examples: a skincare company may manufacture huge quantities of sunscreen lotion just before the onset of summer, and batches of moisturizers just before it starts getting cold.

A company that makes and sells baked products can use the same equipment to bake different types of bread, cakes, muffins, and biscuits in separate batches.

ALSO READ: What is Economic order Quantity? 

What Is Batch Scheduling Software?

In a production process, scheduling is a very complicated function, especially when companies take into account trends in demand and supply so that inefficiencies between different batches can be reduced.

Batch scheduling software or batch scheduling function in robust comprehensive ERP software like Tranquil helps them maximize the use of their assets and facilities, increase throughput, and reduce costs.

Common Batch Scheduling Features and Capabilities

As we said before, modern cloud-based ERP solutions like Tranquil help manufacturers perform batch scheduling.

Here’s a peek at the requisite features:

• Modeling feature – a robust batch scheduling solution will allow you to create advanced models of machines, facilities, capabilities, and restrictions, helping you to develop accurate batch schedules that can be executed effectively.
• Visualization and management in real-time – with graphical representations, decision-makers can easily and clearly see how the production run is progressing in real-time, in formats that are easy to understand. They can also be alerted to any deviations or disruptions straight away. It becomes easy for companies to manage batch schedules and manage them more efficiently.

ALSO READ: Inventory Management Trends to Know

• Optimizing scheduling – with sophisticated tools to plan production, companies can ensure maximum efficiency of batch scheduling, improved throughput, and minimal expense. Machine learning and AI play a big role in this.
• Demand management – manufacturers can align their batch production with contemporary conditions and trends in dynamic environments by including insights on demand from internal stakeholders and external customers.

Choosing the Right Batch Scheduling Software

Obviously, the right software would be one that helps you meet your production requirements.

It makes sense to consult all the important stakeholders – managers of operations department and your supply chain, so that you have a clear understanding of business requirements and can prioritize the features you need.

You can then check out the solutions available in the market, ask for feedback from those who have used them, and also request for demos.

Look for options the vendor provides like implementation and support, and integration as well.

ALSO READ: Effective Inventory Restocking Methods

Why Tranquil?

Tranquil can easily integrate other business systems you have; as a robust, cloud-based ERP, it contains all the requisite features of batch scheduling, that will help you plan your production runs efficiently and help you save money and enhance productivity.

Tranquil ERP can help you streamline all your business processes and boost profitability.

To see how Tranquil can benefit your business, schedule a FREE demo at a date and time of your convenience. Our team will be happy to take you through the solution, and answer any questions you may have.

The Zakat, Tax and Customs Authority (ZATCA) of Saudi Arabia had introduced e-invoicing in the kingdom on 4th December 2021.

The regulation mandated that invoices had to be generated by computer via text editing software by businesses subject to VAT.

Arabic was the primary language and it was compulsory to have the invoices in Arabic.

Businesses can choose to include additional languages of their choice if they so wished.

The regulation also made it mandatory to store the issued e-invoices with the necessary fields that included QR codes and other requirements.

B2C, B2B, and B2G businesses that deal in taxable products and services come under the ambit of e-invoicing.

The process of implementing this regulation has two phases.

The first phase included the issuing and storing of e-invoices using an online system that was aligned with the ZATCA regulations.

Cloud-driven solutions, online cash registers, E-invoicing software, etc. are examples of usable invoicing systems.

It is important that all mandatory boxes must be filled in, and that the invoice must contain all necessary information like the name and VAT number of the issuer, and the time of issue.

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

Phase II

The second phase is known as the integration phase and has more requirements; the most important ones are:

i) that the e-invoicing solutions should be integrated with FATOORA, the ZATCA platform

ii) that the e-invoices must stick to the format as specified, and

iii) that additional fields need to be included in the e-invoice.

ZATCA also announced that the second phase or the Integration Phase would happen in waves, gradually.

They also announced that the date of the waves would be informed six months prior to their date of integration.

As per ZATCA, the launching of the integration phase is in line with the digital transformation and economic advancements occurring in KSA, and an extension of the success of the first phase of the e-invoicing implementation.

Phase One successfully increased the consumer protection levels in Saudi Arabia, and taxpayers were quick to familiarize themselves with the requirements and comply with them.

The second phase is being activated this year, with taxpayers being asked to generate and file their electronic invoices to confirm their validity.

By integrating with the ZATCA system, Saudi authorities will be able to verify transactions to evaluate their tax obligations.

There are even more requirements, including technical measures that businesses need to adopt in the second phase.

Ergo, it makes sense to develop standards that are in compliance with ZATCA regulations so that you can seamlessly sync with their system.

You need to ensure that your system is designed to operate with third-party external systems without hitches.

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

Let’s take a look at the most important changes made to the legislation:

• XML invoice verification amendments
• Changes with regard to data fields and classifying them as mandatory, conditional, or optional
• EGS verification process of taxpayers being amended, and will include a secret value element
• No more classification of VAT ID into individual or group number
• Additional fields for purchase order and contract identification numbers to be included

Wave -1

The first wave started on January 1, 2023. The target businesses: those with a yearly taxable revenue over SAR 3 billion in 2021. The integration period: January 1, 2023 – June 30, 2023.

The target businesses were sent notifications well in advance so that they would get ample time to bring in the changes without disrupting their business.

In the first wave, businesses had to issue e-invoices in XML, PDF/A-3, and other dedicated formats.

Wave -2

This wave will bring businesses with a yearly taxable income of over 0.5 billion in 2021/2022, and the integration period was from July 1, 2023, to December 31, 2023.

ALSO READ: Why Tranquil is One of the Most Trusted ERP Solution Providers in GCC?

Wave -3

All tax-paying businesses whose taxable revenues exceeded SAR 250 million in 2021/2022 are included in this wave.

The integration period is fixed for October 1, 2023, to 31 January 2024.

Wave – 4

ZATCA has determined that in the fourth wave, all taxpaying businesses whose annual revenues crossed SAR 150 million in 2021 or in 2022, would be included and that they would have to integrate their electronic invoicing systems with ZATCA’s FATOORA platform, beginning from 1 November 2023.

It should be noted that those businesses not complying with these regulations will be severely penalized by the authorities.

ALSO READ: Benefits of Having an Employee Self-Service System

Ensure ZATCA Compliance

It is essential that you modify your system to make changes in your system to align it with the new e-invoicing regulations announced in the kingdom of Saudi Arabia.

With integrating solutions that can help you comply with the latest regulations regarding e-invoicing, you can help your business stay secure.

You can also avoid regulatory issues and additional scrutiny.

With simplified tax invoice features, you can fulfil your obligations with regard to taxation and invoices.

At Tranquil, we can help you ensure compliance with ZATCA e-invoicing requirements. You just have to provide your data and get an API connection to fulfil your invoicing requirements. We can help you validate the data and generate invoices free of errors, get the clearance XML invoice, and get the certified XML back from ZATCA. We will also add the second phase QR code and the certified XML in existing invoice to churn out the final PDF A-3 invoice. We can also set up auto-emailing of the final PDF A-3 invoice to your customer and archive your electronic invoices for up to 6 years on remote/cloud servers. All you have to do is get in touch with us with your requirements, and we will take it from there.

Technological advances are taking place rapidly nowadays.

There are revolutionary methods emerging in every aspect of IT, and this includes storage.

IT professionals are looking at all possible solutions for data storage.

Why is this?

With newer and more advanced technology, more storage is required, as there are a large number of files that take up more space.

When device storage is full or nearly so, it can hamper the performance of your computer.

To overcome this hurdle, today we have cloud storage.

ALSO READ: What Is Cloud Data Protection?

Cloud Storage

What exactly is cloud storage?

It simply means storing your files on multiple remote servers that are maintained by third parties.

These can be accessed and even backed up via any device that is connected to the internet.

The biggest advantage this method of storage offers, is scalability, as it overcomes the issue of inadequate space on your devices.

Cloud Storage vs. Local Storage: What is the Difference?

We have seen that cloud storage refers to storing of files on several servers in remote locations.

Local storage means storing data on local servers – that is, services that are usually on your premises.

Both methods of storage have their own pros and cons.

For example, response time is faster in local storage, but cloud storage can be accessed from anywhere.

Overall, cloud storage is more cost-effective and scalable than local storage, and that is the main difference between cloud storage and local storage.

ALSO READ: On-Premise or Cloud Database Hosting

Advantages of Cloud Storage

Cloud storage offers innumerable advantages over local storage.

Let’s check them out:

1. Hands-off Approach

Data stored in the cloud offers hands-off management; that is, little to no human intervention for backing up.

It is automatically backed up at specific intervals.

Even if your own computer hard disk crashes, your data is safe in the cloud, on the remote servers.

2. Accessibility

You don’t need to physically carry your files from one location to the next as cloud data can be accessed from any device.

All you need to do is make sure that it is connected to the internet.

Remote data storage facilitates remote working and hybrid working, allowing employees to work from wherever they are, and use whatever device they want to.

ALSO READ: ERP vs CRM

3. Scalability

Cloud storage is extremely flexible, allowing you to scale up or down as per your business requirements.

If your users decrease, you can scale it down and save money.

Whenever you need to add more users, you can do so easily.

You only have to pay for the resources that you use.

4. Disaster Recovery

Thanks to the regular backing up of cloud storage data, you can rest assured even when there is a breakdown or hardware failure.

Disaster recovery is much simpler and quicker in the cloud, and what’s more, you don’t have to worry about doing it yourself.

5. No On-Site Server Maintenance Required

When you use cloud storage, you don’t require an on-site server, which means you can outsource the maintenance task to the cloud.

This in turn brings down your expenses which you would have incurred if you had to do on-premise maintenance.

ALSO READ: How Do ERP and Cloud Computing Differ? 

What are the Disadvantages of Cloud Storage?

As with any other technology or methodology, cloud storage also has a few disadvantages. So let us take a look at what they are:

• Less control over data, as some file types cannot be uploaded by a business
• Security concerns – proprietary information is vulnerable to breaches as the cloud data can be accessed from the internet.
• Connection dependency – your access to information in the cloud is only as good as your connection; the better the connection, the faster you can access information.

What are the Vulnerabilities of Cloud Storage?

Misconfiguration is the biggest vulnerability of cloud storage, and these misconfigurations can lead to data breaches as the accessibility is not properly secured and managed.

In such cases, employees or hackers can gain access to sensitive information that can cause a substantial breach of data.

Poor access control and absence of stringent restrictions can cause non-compliance by the business, with standards like HIPAA or Health Insurance Portability and Accountability Act and PCI-DSS or Payment Card Industry-Data Security Standard.

APIs or application programming interfaces open up communication channels, and can leave the app vulnerable to attacks.

On top of it when there are no stringent authentication or authorization measures, they can be exploited easily.

Basically, wherever there is poor management of access or lack of role-based control of access, or where there is absence of a policy to disable or delete accounts of inactive and former employees, there is likely to be a high risk of vulnerability.

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How can you Mitigate Vulnerabilities in Cloud Storage?

The first thing to do to mitigate vulnerabilities, is recognizing the issues.

You can make use of a tool to scan vulnerabilities to detect the CVEs or the most common vulnerabilities and exposures.

After identifying the CVEs, use a vulnerability checklist to evaluate the risks.

Once the assessment is completed, the IT department can fix the riskiest vulnerabilities, or they can try and reduce the severity of the risk.

It can also happen sometimes, that some vulnerabilities may not pose any threat; in such a case, no action is required to be taken.

The next step after performing all corrective measures, is to run a vulnerability scan to churn out a report on vulnerability assessment to detect the weak links in APIs and web apps.

You can also run a penetration test to identify vulnerabilities before they can be exploited by hackers.

It is advisable to run the scanning program on a regular basis to ensure that there are no potential weak links or vulnerabilities.

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

Cloud Storage Vulnerabilities Vs Local Storage Vulnerabilities

Vulnerabilities that are present in cloud storage are also applicable to local storage.

Regardless of the type of storage your business uses, you need to have a proper plan in place for disaster recovery, take backups, sophisticated anti-virus and anti-malware software tools, along with access plans of minimal privilege.

All these measures will help in detecting abnormal traffic and behavior of files.

Cost Comparison of Cloud Storage Vs Local Storage

Let us understand this with the help of a table. You will see here that in almost every cost category, the cloud solution costs less than the solution offered by local storage.

In only one category, as there is an unknown variable – that is, the amount of actual storage space that will be required to support the requirements of business data – the benefit of the doubt is given to the local storage method.

You can use available tools like TCO calculators from various vendors to estimate how much it will cost you to store your data on the premises, what your network bandwidth requirements are, and how much CPU you will need.

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Category of Cost	Cloud Storage	Local Storage	Which is Better?
Initial outlay	Low cost of start-up	High cost of start-up	Cloud
Maintenance Expenses	Very low cost of maintenance	Very High fees for maintenance	Cloud
Storage	Terabyte storage forms part of the monthly fee	It depends on the space needed; If less than 1TB is needed, local is better	Subjective; Depends on local storage space requirements
Scaling Capabilities	Easily scale up or down as per requirements	Limited scalability and tends to be costly	Cloud
Security	Security is built-in	Requires trained IT staff or outsourcing	Cloud

 

Hence, we can see that when it comes to the total Cost of Ownership, Cloud storage cost tends to be lesser than local storage on the whole

To Wrap Up

In these intensely competitive times, it is critical that you have access to important business information as and when it is required, to close deals or provide good customer service.

Having this access gives you a tremendous competitive advantage, scalability, and flexibility – everything that is important for business success.

Here we can see that cloud storage allows you to do all of this – which makes it preferable over local storage.

After all, how many hard drives will you keep adding to your IT infrastructure?

ALSO READ: Why Tranquil is One of the Most Trusted ERP Solution Providers in GCC?

Why Tranquil?

Tranquil ERP is a cloud-based business solution that gets rid of information silos, unifies data from all your departments, and stores it in a central base, offering controlled access to relevant employees, to empower them with information when it is most needed.

Tranquil helps to streamline and automate all your business processes, increasing efficiency and productivity, and boosting your revenue.

It is flexible and scalable and capable of handling the extra workload every time you add new products, customers, employees, locations, currencies, and increased transactions.

Our application is user-friendly and secure, and we take every precaution to safeguard your sensitive business information.

We draw up SLAs where we establish clearly, matters like disaster recovery time, and we stringently adhere to them.

This helps to ensure that the downtime and business disruption is kept to a minimum and that there is business continuity.

We help you manage your customer expectations with this service.

It is economical for you as a business and delivers multiple benefits.

ALSO READ: Different Ways to Improve the Procurement Process

If you are unsure of how our solution can benefit your business, we would love to show you how! Do schedule a FREE demo at a day and time of your convenience, and we will walk you through the software. Our representatives will be happy to answer any query you may have regarding its functions.

Inventory is a critical component in the supply chain – we are referring to the raw materials to be used in production and the finished goods ready for sale – and also one of the biggest assets of any company dealing in products.

Therefore, it needs to be meticulously tracked and managed; only then can you reduce costs and boost profitability.

This is exactly the function of inventory management – it must be able to support product/material procurement too; previously, these systems were mostly manual, and focused on record maintenance and simple reports.

However, today businesses are look at strategic needs, and planning more thoroughly – analyzing sales trend to predict future demand as accurately as possible in order to be able to fulfil demands of discerning customers.

Inventory management is an important part of supply chain management.

The market is flooded with solutions; in such a scenario, which solution should you choose for your business, and what are the desired inventory management system features?

What Is an Inventory Management System?

Whether you are a distributor, manufacturer, retailer or wholesaler, your purchase department is tasked with product procurement, reordering products to replenish dwindling stocks, etc.

An inventory management system can help you to track all incoming and outgoing inventory to meet customer demand better, and avoid both stockouts which leads to loss of business, and overstocking which leads to huge carrying costs.

The system has an impact on all important business functions like production, purchase, accounts, warehouse management, sales, marketing, and customer service.

ALSO READ: What is an Inventory Control System?

What Are the Major Specifications of Inventory Management Systems?

The major specifications of the inventory management system include providing a way to store, organize, track, and study inventory data, and the requirements include:

• A user-friendly interface that can be used by tech newbies
• Automation of manual processes and streamlining of business functions
• Robust and secure database that offers real-time data that is accurate.
• Facilitates quick and actionable inventory tracking and control
• Easy scalability
• Software integration and automation that minimize manual inputs

Inventory System is a Strategic Choice

If you look up inventory management systems, you can find hundreds of them online.

So how will you know what’s best for your business?

Today you get systems specialized for specific businesses; if you’re a wholesaler, eliminate those specifically made for manufacturers; similarly, eliminate those systems created for specific industries which are not yours.

As a retailer, you need a more customer-centric application.

As a manufacturer, you should check out systems made for manufacturers.

It is essential that you have a clear understanding of your business requirements before you search.

ALSO READ: Inventory Management Trends to Know

Inventory Management Software Features

1. Real-time Tracking of Inventory

It is absolutely essential to be able to know what inventory you have and where it is in real time.

It must reflect stock coming in or going out, and allocations as well.

• Sales orders should be reflected in the stock to prevent selling stock that can’t be delivered
• Inbound inventory must be reflected as soon as they are scanned on entering the warehouse
• Transfers of inventory must be recorded in real time
• Consignment stock must be tracked even if it’s held elsewhere

2. Inventory Value in Real Time

The finance team must know the exact worth of the inventory the company holds.

Ergo, a robust inventory system must offer:

• Precise values that also consider price and volume variations in your purchase
• A real-time view of inventory value categorized by country, region, warehouse, etc
• If you trade internationally, multi-currency support
• Tracking variable costs like production wastage, courier charges etc.
• A granular view of the cost of goods sold through proper grouping
• Real-time view of profit margins on products by location and sales channel accounting for variable costs

ALSO READ: Common Inventory Management Problems and Solutions

3. Reorder Levels and Low Stock Alerts

One of the major reasons you must manage inventory efficiently is to ensure that you always have sufficient stock for sale or production.

The software should allow you to set automated alerts when stocks reach a specific level – taking into account supplier lead times, so that fresh stocks come in just before you completely run out.

4. Purchase Management and Supplier Management

With a robust inventory management system, you can exercise greater control over your purchases, knowing exactly what you have on hand, its value and location; this allows you to make better choices when you have to place orders for fresh stock.

It is far more efficient than manual systems.

Reliable systems like Tranquil allow you to:

• Generate P.O’s and automatically fill them
• Store all vendor details centrally
• Generate supplier discounts dynamically to ease optimal purchasing
• Check supplier-wise transaction history

5. Unlimited SKUs

A good inventory management software should not limit the number of products you are able to add – or customers, vendors, and transactions, for that matter.

When you invest in software, it’s because you are focusing on growth.

Therefore, your software should be scalable and future-ready.

ALSO READ: Benefits of Warehouse Management System

6. Robust Reporting

Your software must be able to churn out a variety of reports based on different criteria; only then can it be termed reliable and efficient.

Manual data extraction every month is tedious and prone to errors.

You should be able to generate reports on unit sales, age of inventory, inventory turnover rate, margins, rate of backorders, average number of days each SKU takes to sell, and so on.

The Best IMS Features For Manufacturers

Let’s now look at features you should have if you’re a manufacturer

1. Assemblies

Internal stock movements and value shifting to assembled products from individual parts.

2. Bills of Material (BoM) management

A BoM is basically the recipe for manufacturing a product: the exact quantities of raw materials, accessories, other components etc.

You can significantly simplify the process of ordering the correct components in the exact quantities for uninterrupted and economical production if your BoMs can be handled by the IMS.

A desirable but not critical feature is automatic filling of P.O’s straight from the BoM, considering what stock is available, to fulfil the production.

Nesting of BoMs for complex products, and recording the value of wastage in production are also good to have.

ALSO READ: Pipeline Inventory and Decoupling Inventory

3. Batch or Lot tracking

This is especially valuable for food manufacturers as it helps you track batches and monitor their expiry dates.

This can help you consume or sell such goods before they become unusable.

Batch tracking also helps in the event a product has to be recalled.

4. Serial Number Tracking

This goes a step further than batch tracking and tracks each individual component or product.

This is critical if your business manages several components that are high in value, or are very specific, or even if after-sales service is a critical aspect of your business.

The Best IMS Features For The Warehouse

If you operate your own warehouses, you should look for these features:

1. Electronic Scanning

Electronic tracking of goods in warehouses is far more efficient, which is why it is also very popular.

Nowadays, warehouses use various methods like barcodes, QR codes, RFID tags. GPS, Bluetooth etc. to keep track of inventory.

Software support for electronic scanning is therefore an essential feature nowadays.

The scanning is typically used for stock counting, receiving purchase orders, and sales shipments.

ALSO READ: What is Negative Inventory?

2. Picking, Packing and Dispatching

The core activities in a warehouse are picking, packing, and dispatching; it is therefore essential that you exercise excellent control and have flexibility in this regard.

Check if the application has features like partial shipment completion capability, international commerce code support for international shipments, and warehouse internal route optimization via flexible pick lists.

3. Stocktaking Support

Stocktaking is a critical inventory activity, and it is absolutely essential that your inventory management system has this feature included.

Though terribly cumbersome, you do have to manually verify stock figures; hence, it is a good idea to have software that will reduce the effort as much as possible.

Ideally, the IMS should include features that don’t cause a lot of disruption or downtime.

Stock adjustment is another feature it should have so that discrepancies can be rectified and variance reporting to follow up can be carried out properly.

ALSO READ: Route and Van Sales – Challenges and Opportunities

Additional Desirable Features

The features we talked about earlier were the absolutely essential ones.

Now we come to some desirable features that can simplify your life immensely.

1. A Mobile Sales App

Your employees working on the shop floor or on the road are greatly benefited with this as they can respond to customer queries about what’s in stock by checking in the app, instantly.

This visibility (into lead times as well as current stocks) will help them close deals quickly, fulfil orders, and boost sales.

2. Support for Multiple Sales Channels

Multiple sales channels are invaluable in handling disruptions, like the one caused by the COVID-19 pandemic. Ideally, your IMS must:

• Integrate with POS apps
• Integrate with B2C sales enabling eCommerce platforms
• Be able to take B2B orders efficiently

Your sales order management system must flow seamlessly from your various sales channels to your inventory and preferably through purchasing for best results.

It would also help if it is able to maintain visibility into accurate margins over all the channels.

ALSO READ: What is Mobile ERP? Benefits and Applications

3. Modern Data Security

Based on where you are located and the nature of your business, you may be required to implement specific levels of data security by law.

Regardless of that it also makes good business sense to have ironclad security that will protect customer and company data of a sensitive nature.

Tranquil ERP has superior encryption standards which means you don’t have to worry.

4. Compatibility with your Other Apps

If you use CRM or other apps, it is essential that your inventory management solution should be able to integrate smoothly with them.

This means easy sharing of data between applications, which simplifies life for you.

At the very least, your IMS should be capable of integrating with other apps via API, if not a plug and play solution.

ALSO READ: Advantages of ERP to Automotive Businesses

5. Advanced Analytics

When you have advanced inventory management software features, it goes without saying that the system will churn out mountains of data.

Including a built-in business intelligence feature will be a huge plus for you, as it will deliver actionable insights, which helps you take informed decisions to improve inventory efficiency.

Tranquil ERP has a proven track record when it comes to helping companies manage their inventory efficiently. You should not hesitate to implement this robust inventory management system in your business to save time and money and improve your profitability. Schedule a FREE demo to see exactly how this can be done.

 

Technology has permeated every facet of our lives, and has become an intrinsic part of business.

Today most businesses use enterprise resource planning systems to streamline and automate their processes, centralize information, enhance collaboration, boost productivity and profitability.

ERP solutions save businesses significant amounts of time and money, and allow employees and management to focus on core business activities.

Over the years, ERP software has also undergone considerable transformation, to reflect the changing needs of business, and the advent of technology as well.

The current business environment is also vastly different from what it used to be previously.

Therefore, it is quite possible that the ERP system that you had implemented for your company years ago, is no longer sufficient for the current requirements.

ALSO READ: Guide on How Do ERP Systems Work 

There could be a serious misalignment between the ERP software and your business processes and requirements; you may be due for an ERP upgrade.

If you don’t you could become stagnant and your profitability could dip. You’re likely to end up with obsolete systems that don’t offer you the desired benefits.

Upgrading your ERP means a huge expense; this means the management as to evaluate the present situation, and have a list of reasons to support their request for upgrading the existing system.

All stakeholders involved need to be told in detail about the issues being faced at present, and they must be convinced about the need for an ERP system upgrade.

This is because most people are comfortable sticking with a known system even if it is outmoded.

Hence, it will be good for you to have a project plan and a checklist ready when you make your presentation.

ALSO READ: Critical Factors for a Successful ERP Implementation

Why Are ERP Upgrades Important?

ERP software upgrades are essential because they can create tremendous value.

The modern ERP solutions have features that enable your business to save substantially on expenses or leverage new opportunities – something legacy software cannot.

ERP systems today offer visibility in real-time thanks to KPIs, scorecards, and all-inclusive dashboards.

They use machine learning and AI to bring in even more automation and enables management to take more informed decisions.

Most of the ERP solutions like Tranquil are cloud based, have adopted enhanced ecommerce capabilities that are also integrated better, and offer excellent mobile support – making remote access easy.

Cloud based software is also extremely secure and you have little downtime in the event of a system crash too.

All of these features are very important today, as both business relationships and processes are evolving rapidly, and moving increasingly into the digital space from the physical.

Some ERP solutions also integrate IoT to deliver extra information in real time including info on the status, affording more control over supply chains, and identifying potential hiccups at the early stages itself.

Today, supply chains have increased in complexity, leaving numerous avenues for things to go wrong.

However, if you upgrade your ERP system, you may just be able to avoid all of these issues.

ALSO READ: Common ERP Myths

Upgrade or Replace?

Well, this depends on which method will offer your business the most value, and of course, how much each will cost the business.

Both these options have their own pros and cons, depending on the needs of the business and the shortcomings of the legacy system.

Therefore, there is no definite answer to this question, certainly no one-size-fits-all solution.

Benefits of Upgrading Your ERP system

Let us now look at ERP upgrade benefits in detail:

1. Increased Automation

New and advanced ERP software has features that allow you to save considerable time.

You can minimize manual tasks and avoid most paper-based processes that are time consuming and cumbersome.

Automation enables employees to focus on value adding tasks that propel the business towards growth.

Data entry automation, new report templates and so on are examples of new features and developments.

ALSO READ: Benefits of Blockchain in Cloud Computing

2. Safeguard your Data

With older systems, your sensitive data is more vulnerable to cyber-attacks.

Modern ERP solutions use ironclad security protocols, making chances of data theft or breach very slim.

It is also mandatory nowadays thanking to increasingly strict government and industry regulations regarding safeguarding of sensitive customer information.

3. Better Quality Systems

Information systems are rapidly evolving, rendering software released even 5 years ago obsolete and unusable.

Similarly, the quality of ERP solutions continues to increase quickly; everyone wants the best quality, obviously.

The more enhanced and feature-rich your ERP solution, the more you can support your business with streamlining and automation, and the greater your success is likely to be.

ALSO READ: Why ERP User Interfaces are Important?

4. Better Performance

Quite frequently, one comes across performance issues with ERP software, and this can be a very complicated matter.

The problems in performance could be caused by one of several reasons like software glitches, server issues, poor connectivity, or something else.

These problems tend to build up over time and occur more frequently, causing a lot of bother, not to mention that it may disrupt operations and cause severe problems with inventory, orders, etc.

ERP upgrade process also may cause a little disruption but it is minimal and can be easily managed; after upgrading, you are sure to experience much-improved performance than before.

5. Higher User Productivity

Upgrading your ERP software can help you increase employee productivity significantly.

By spending little to no time on routine administrative tasks, your staff can do more productive, value-adding jobs, gain quick insights into important data, and have it much easier with new software.

Happy employees are productive employees; productive employees lead to increased revenues.

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

6. Higher Process Productivity

The main task of ERP software is to support business processes; which is why, when you are thinking of a system upgrade, you need to take a very close look at the processes you are using in our business currently.

At Tranquil, we take time to understand and study your process flows in the diagnostics stage, and then determine how the software can best automate it.

Ideally, the new system or system upgrade should be able to streamline your processes, and also support processes that you were performing manually till now, or were using a less efficient software to accomplish.

7. Get a Competitive Edge

If you are unwilling to switch to a newer version and continue with the outdated one, you stand to get left behind and lose out to your competitors, because they are highly likely to upgrade their systems.

They may start offering much better customer service and improve their processes, operations, and productivity, increasing their profits, leaving you huffing and puffing behind.

If you upgrade to the latest systems, you can get ahead of them.

ALSO READ: ERP Trends

8. Real-time Visibility

A modern, feature-packed ERP like Tranquil provides comprehensive, accurate, and real-time visibility into your business.

You can even search through your databases and consolidate your sources to have detailed information at your fingertips.

All of these factors help you in making informed, data-driven decisions in all aspects of business, especially when planning and forecasting.

9. Scalability

Modern ERP solutions like Tranquil grow along with your business, as they are designed and developed to be scalable.

With every upgrade, it continues to grow and evolve, and support the growth of your business as well.

The ERP software of today also include additional features making them compatible with third-party apps, extending the functionality of your ERP.

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

10. Better Integration within the Company

In case your company uses multiple software apps for multiple departments, you could have duplicate data, redundant data, missing data, and utter confusion.

However, with a robust ERP system, you can eliminate all of these different solutions, and have just one unified solution for every department.

You can have improved collaboration and cooperation, no ambiguity, as every department is on the same page.

All the relevant cross-organizational information can be accessed by everyone who needs to.

11. Better Integration with other Software

We already saw that many ERP solutions easily integrate with various third-party apps.

What benefits can this integration bring?

It can make everyday operations much smoother; for example, ERP can be integrated with CRM, field service solutions, web portals (e-commerce solutions), vendor systems, customer apps, and so on.

With this kind of integration, there is greater information sharing, which makes everything much easier.

ALSO READ: What are the Challenges in ERP Implementation?

12. Lower IT Costs

While it can cost a lot to upgrade your ERP, you need to think of it an investment, as it can significantly reduce your IT costs overall in time.

When you move away from outmoded tech that tends to crash and fail every now and then and install faster, more efficient applications, your speed, and performance improves tremendously, leading to improved processes and productivity.

You can calculate how much your desired or expected benefit is from the new system – both direct and indirect.

Compare this to the amount you are investing, and you can do a quick ROI analysis for your company.

Remember to include both the monetary and resource aspects.

ALSO READ: Benefits Of Software As A Service

13. Mobility

This is one of the best things about modern ERP systems.

Being cloud-based, they allow employees to work from home, on site, or anywhere else, and on any device at any time.

All they require is a steady internet connection and their login credentials, and they can access important information that is required to attain their targets for that day.

At Tranquil, we also offer a mobile app which is integrated with the web ERP, offering a seamless and easy experience for your employees.

By switching to the newer version, you can ensure that your system is functioning optimally and that you don’t have any issues when it comes to data syncing and staying connected to the system.

14. Compliance with Government Regulations

The new versions of ERP will also help you maintain compliance with various taxation, HR, and other government regulations; regulations are always changing, and the older ERP apps may not support the new compliance requirements.

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

Risks of Not Upgrading Software

Let’s take a quick look at the dangers of not upgrading your ERP:

• When software companies release new versions of their software, they may no longer offer tech support for the older versions as it may not be feasible or worthwhile for them. Important and necessary updates to the software may also stop, creating security risks for your business. This is a very common occurrence in software.
• Your legacy software is likely to be on old servers which may be outdated now. If your organization is unable to update a system component, the whole software will be hosted on the old server, and this can substantially increase your security risk and leave your system vulnerable to cyber-attacks.
• Older systems are not security checked like the newer ones, and they are therefore more vulnerable to information theft or compromise. Advanced technology has very stringent security checks and protocols, making it almost impossible to penetration by normal malware and viruses.

Tranquil is a cloud-based, feature-packed and economically priced ERP software that can deliver immense benefits for your business. Schedule a FREE demo to know more.

 

Today, there are intricate connections between retailers, distributors, vendors, manufacturers, and customers in the global economy.

The actions of one impact one another – whether negative or positive. It is therefore essential to have seamless coordination between the different partners in the supply chain to maintain your competitive edge, have customer retention, and have peak efficiency in operations.

Despite this, you may find that some suppliers’ performance isn’t satisfactory.

Vendor-level inefficiencies may not only disrupt your supply chain, but also raise your risk of not fulfilling customer expectations.

Obviously, it’s not possible to directly control your vendors; however, you can boost their performance by being proactive.

You can use tactics to enhance collaboration, measure efficiency via metrics, and also use technology to your benefit.

ALSO READ: Different Ways to Improve the Procurement Process

Why is Supplier Performance Important?

Customer is king, and businesses are always scrambling to meet their demands – and are on the lookout for ideas that can improve the management of their supply chain.

By improving supplier performance, you can:

• Proactively handle disruptions in supply chain before they blow up
• Reduce unnecessary expenses substantially through supplier performance evaluation
• Have optimized value chains and recognize avenues to boost efficiency
• Build long-term relationships with vendors that offer mutual benefits to you and them
• Reduce your risks with regard to customer delivery, security, and costs
• Boost your reputation by proactively correcting issues and not allowing them to affect customers

ALSO READ: Cost Effectiveness Vs Cost Efficiency

Common Performance Challenges

If you want to have an edge over your competition, managing supplier performance is critical.

It does have its challenges, as supply chain faces difficulties constantly.

With a robust SRM strategy, you can decrease these challenges and help your business deliver more value to customers, minimize inefficiencies, and build your reputation.

Let’s take a look at the problems for your vendors and your business:

Suppliers

• Smaller vendors may not be able to implement tech like EDI that automates transactions and speeds up fulfilment, like what most large vendors do. The disparity can cause inefficiencies and non-compliance with EDI requirements of larger institutions.
• Poor inventory management that leads to overselling, stock-outs, improper inventory allocation – all leading to lost sales, customer unhappiness, and a damaged reputation.

ALSO READ: A Guide To Inventory Stock Valuation

• Dependence on manual processes can lead to excessive delays. Processing orders manually, emailing and faxing customers etc. takes time and can cause errors. It can also become difficult to meet delivery deadlines, advance shipping notices etc.; and again, small vendors may not find it economical to implement technology to automate.
• Not managing risk properly can jeopardize vendor relationships with retailers. Cybersecurity, finances, and production are some of the areas where suppliers can pose risk.

Buyers

• SRM strategy can help in effective management of vendor relationships and achieve business goals. Disrupted supply chains can be expensive, and impact your reputation. Without this strategy, businesses cannot perform vendor performance evaluation or be proactive to manage relationships to ensure reliable results
• Not having standardized transactions can be problematic. Vendors sending outmoded file types for important order documents like spreadsheets, faxes, and emails, can hamper your team and limit their efficiency. It can take ages to reconcile that data with info in your systems, leading to errors.
• Improper communication like not sharing relevant data or sharing it late can also lead to inefficiency and disrupt the supply chain and cause expenses. It can also spoil the relationships with vendors.

ALSO READ : Physical Stock Verification and Its Advantages

Improving Supplier Performance

Planning to improve supplier performance is not just about supplier performance metrics; it also enables building robust partnerships between businesses and vendors.

Here is what we gathered from various industry experts:

1. Conducting a Needs Analysis

The first step you need to take is to know where you are right now and where you want to go; a clear picture about what needs to improve to achieve your business goals is important.

A needs analysis can help you identify:

• How many suppliers is optimal, by comparing the current number with the ideal (arrived at considering business goals and continuity plan). You can also think about vendor diversity that would help in reducing the risk of disruption in your supply chain.
• What risks you have currently in your supply chain, by determining the risks posed by suppliers to your operations and goals.
• Which metrics you want to use to evaluate your suppliers’ performance, to help you verify if they meet your business needs.

ALSO READ: Importance of Fixed Asset Tracking

2. Involve Upper Management

It is imperative that you involve the upper management in the process; align corporate targets with supplier performance targets in your business plan – whatever the targets may be.

Cost reduction, tech innovation, productivity optimization, new markets – to achieve any of these, it’s important the management is convinced.

When you present your plan persuasively, you can be surer of proper resource allocation to meet your targets.

3. Update Your Service-Level Agreements

To operate at maximum efficiency, it is essential that your expectations are aligned with your suppliers’.

To this end, you need to update your SLAs with vendors to ensure clarity of intent, and make your relationships with them more predictable.

It can help vendors understand your demand patterns and scheduling of orders even as they change as time goes by.

ALSO READ: What Is a Balance Sheet?

You should ideally update:

• Delivery speed, ASN turnaround times and other service-level timeframes
• Minimum performance expectations for various supplier metrics
• Compliance requirements which include necessary documents; changes required for various documents in SLAs or vendor portals should be specified
• Changes to chargeback procedures or other penalties

4. Measure Supplier Performance KPIs

The management process becomes easier when you define which supplier performance indicators you want to measure at the outset.

It allows you to constructively discuss supplier performance and come up with ways to improve them.

Most popular metrics include:

• Delivery – should always be punctual and in full, when compared to the pre-set lead time
• Cost – both parties agree on product price; noting when and why they change helps gain insights into vendor efficiency
• Quality – you can develop product quality threshold by monitoring defects or complaints received about vendor products
• Compliance – does the vendor comply with pertinent regulations?
• Responsiveness – how fast does the vendor respond to communications, documents sent, and orders placed?

You need to aggregate the metrics you collect over time and study them to get a clear picture about vendor performance; remember to prioritize the metrics that affect your business continuity and revenues the most.

ALSO READ: Vital Procurement KPIs You Cannot Ignore

5. Define and Report Supplier Expectations

Establish permanent measurement methods with yearly reviews that cover crucial aspects like response capacity, sales support, product management, and service evaluation.

This will allow you to convey to the vendor what exactly you want and makes you satisfied.

Rather than a generic scorecard, try implementing unique needs per vendor.

Yes, it’s more work, but will be much more effective in the long term.

With customized targets, vendors can’t shirk their responsibilities.

The scorecard functions as a dashboard updated daily and conveys clearly defined responsibilities and standards to both parties.

6. Analyze Your Purchasing and SCM Practices

You can focus on your strengths and weaknesses with appropriate analysis and identify the organizational changes needed to rectify the gaps discovered.

Ensure that your internal reviews are realistic and honest.

Draw comparisons between your company and other similar companies, and check which areas can be improved.

Asking for outside help for a completely unbiased evaluation is also a good idea.

ALSO READ: Keys To Make Project Management Success

7. Be Proactive

With market conditions in a perpetual state of flux and customer demands taking unpredictable turns, it makes sense to be proactive where SRM is concerned.

Communicate with your vendors proactively to ensure that your business is able to handle challenges before they have a negative effect on the later stages in the supply chain.

Being able to predict and rectify problems in performance ensures you have better control over vendor relationships and helps in achieving business goals.

Sharing information via integrated tech solutions and having regular two-way communication with vendors about how you can help them is one way of taking a proactive approach to managing your relationships with them.

If a supplier fails to meet the yardsticks established, share analytics with them to make them aware of their shortcomings and help them plan their shortcomings.

Being proactive can not just enhance communication but also optimize processes for you and your vendor, boosting the resilience of your supply chain.

ALSO READ: Important ERP Implementation Questions to Ask

8. Team Approach for Supplier Management

You can bring all the functional areas responsible for the different elements of vendor performance under a single structure through a team approach, with you (the buyer) as the team leader.

Engineering, quality, planning, logistics and other departments may be brought into the team depending on the size and complexity of the supply chain.

It is essential that these teams are permanent for successful functioning and not temporary assignments for fulfilling short-term targets.

Ideally, team members must share SRM targets and plans, learning and working together to improve supplier performance.

Modern supply chains are complex and require more resources than most businesses have; however, the long-term gains from following this approach are humungous.

9. Continuous Team Training

Unfortunately, most companies ignore basic training on internal systems and practices, industry standards, and long-term strategies for supplier improvement etc., making them less efficient, especially when you compare them to well-trained teams.

Approaching suppliers, displaying an understanding of how their systems and operations work, enabling them to achieve new targets, all come under the ambit of improving vendor performance.

Training must focus on what is required from vendors and how to get it.

ALSO READ: Emerging Trends in Supply Chain Management

10. Collaborate on Improvements

Collaborating with suppliers means getting them on board with your strategy building process and leveraging their expertise to jointly develop solutions.

This method is more sustainable than retailers identifying areas for improvement and asking vendors to come up with a solution.

Identify the reasons for inefficiencies and disruptions in supply chains and tackle the root causes in collaboration, integrating tech solutions with suppliers can ease collaboration.

11. Implement the Right Technology

The right tools can help you collect, organize and analyze real-time vendor data easily.

The right tech is essential for your business to have more visibility into supply chain challenges like customer demand, simultaneously optimizing all steps in the chain. Tech solution include:

• EDI system – this makes exchanging business documents speedy and accurate and helps to maintain compliance. It simplifies automation of certain processes like sending invoices, POs, shipping notices etc. in standardized formats.
• Supplier enablement portals – this is an alternative to EDI, and have multiple options for vendors. This includes a simple web EDI portal, EDI connectivity, and supplier transformation capabilities via PDF docs and emails. They usually have dashboards that analyze vendor spend and comparing performance with your KPIs.

ALSO READ: What is Hybrid ERP?

12. Building Greater Connections with Suppliers

Vendors are vital partners to achieve optimal supply chains; you can partner with your vendors to deploy strategies that boost their performance, streamline your supply chain, attain your objectives and benefit from robust partnerships.

At Tranquil, we provide a platform that enhances communication across the supply chain, give you 360-degree view of your inventory, product info, order statuses, etc. Our solution can help you cut costs, save time, and have a competitive advantage. Do schedule a FREE demo to see how it works!

Money drives business and hence, every business, whether a small startup or established multinational, constantly looks for ways to save money, or to use the funds in a more productive way – that is, to make more money!

When talking about saving costs, there are two terms that we often hear people use: cost-effectiveness and cost-efficiency.

But the two words though similar sounding, are different.

Let us look what cost effectiveness vs cost efficiency is and what it entails.

Hopefully, by the end of this article, you will know to differentiate between these two important terms, and know how to achieve both for the benefit of your business.

ALSO READ: Cost Reduction Strategies in Procurement

Key Takeaways

Cost-effectiveness focuses on enhancement of spend rather than spending funds on expensive solutions that does not deliver significant benefits.

Cost-efficiency refers to the capability of businesses to cut costs and increase productivity, and earn more profits than competing businesses with access to similar resources.

Being cost-effective focuses on doing the right things whereas being cost-efficient focuses on doing things the right way.

What is Cost-Effectiveness?

To put it in simple words, to be cost-effective means to minimize your expenses and maximize your profitability.

It is about looking for the best ways to spend money to get the most benefit rather than spend your funds on an expensive solution that delivers little or no benefits.

ALSO READ: Benefits of Warehouse Management System

The Importance of Being Cost-Effective

Being cost-effective allows companies to earn maximum profits by keeping costs to a minimum.

Companies can also measure how well they are able to achieve their business objectives by being cost-effective.

Cost-effectiveness allows you to know the right measure to take for your business for steady and rapid growth.

Being cost-effective is essential for any business to grow.

What is Cost-Efficiency?

Cost-efficiency is also very important for any business; while it can mean several things depending on the context, there is one major thing it does refer to regardless of type or size of business.

That is the capability of the business to cut their costs, boost productivity, and churn out greater profits than competing businesses who have more or less the same resources and incur similar expenses.

A business that practices cost-efficiency is capable of delivery superior services to its customers, while preventing overspending and attaining higher profit margins.

To put it in simple words, for a business to be cost-efficient means how it can deliver products and services at the least possible cost with zero compromise on quality.

ALSO READ: Detailed Guide on ROI on ERP Implementation

It is all about saving on expenses while at the same time maintaining a high standard of product quality, service, innovation, and so on.

Being cost-effective is not the same as cutting costs; cost-cutting is all about saving money without considering the effects on the business in the long run.

Being cost-efficient can help your business to save money without negatively impacting your products or services that you deliver to your customers.

The Importance of Being Cost-Efficient

By being cost-efficient, companies can become more profitable, and become capable of making more informed decisions.

This is achieved through a thorough evaluation of costs, benefits, and value of investments, and it can also help in discovering opportunities that you may have overlooked otherwise.

Companies can maximize their potential when they are cost efficient, and can prevent stretching themselves too thin financially.

This is especially important for small businesses who are yet to accumulate abundant resources.

ALSO READ: Different Ways to Improve the Procurement Process

What Are the Major Differences between Cost-Effectiveness and Cost-Efficiency?

As we discussed above, both cost-effectiveness and cost-efficiency are two commonly used words in business that are often erroneously used in place of each other, though they mean different things.

You measure cost-effectiveness to determine how well your business has achieved its goals; basically, it is the relationship between how many resources you utilize to achieve the results you have.

Whereas, cost-efficiency talks about the methods by which a business uses the least resources or incurs the lowest cost in completing a project or delivering goods and services to the customer, without compromising on the promised quality standards.

To put it in another way, when a business is cost-effective, we can say that it is doing the right things.

When a business is cos-efficient, we can say that it is doing things the right way.

ALSO READ: Understanding the Importance of Distribution Management

How Can you Improve Cost-Effectiveness?

Now that we have seen what cost-effectiveness is, let us look at the ways to be more cost-effective.

1. Develop a System to Manage Cost

It is imperative that there is a system that allows companies to study and implement strategies to save on expenses.

Without having visibility into all of the spending of your whole company, it will be nearly impossible to employ a strategy that allows you to be cost effective.

Implementing a system to manage costs optimizes your supply chain, reducing your expenses via domestic purchasing and other strategies.

ALSO READ: Challenges and Opportunities of AI in Procurement

2. Look for Ways to Save Money on Inventory

Around the world, businesses that deal in products have to spend a huge amount on inventory.

However, you can reduce your spending if you manage your inventory properly.

Tranquil inventory management system can help you do just that.

By controlling the inventory effectively, you can minimize your total spend by monitoring and handling sudden flareups in variable costs that can occur when you carry inventory for a longer period.

ALSO READ: MRO Inventory and Its Importance

3. Create a Strong IT Infrastructure

When you build and implement a robust IT infrastructure, you can minimize outages and downtime, and significantly bring down failure in business operations.

By moving to cloud IT infrastructure, you can substantially reduce expenses of maintaining the system, and even make it simple and smooth to manage.

The initial financial outlay may be large, however, you will realize that automating systems delivers immense benefits in both the short term as well as the long term for your company.

ALSO READ: What is Economic order Quantity? 

How Can You Improve Cost-Efficiency?

We’ve seen above how a business can improve cost-effectiveness, now let us understand how to be more cost-efficient.

1. Perform a Cost-benefit Analysis

A cost benefit analysis will allow your company to assess the economic value of undertaking a specific project.

It is valuable for businesses who want to become cost-efficient as it studies if a specific project delivers benefits that outweighs the expenses.

A cost benefit analysis gives businesses a basis for comparing projects, and it is also a systematic method of arriving at the most cost-efficient path to the desired results of that business.

ALSO READ: Benefits and Steps of SKU Rationalization

2. Set a Budget for your Project

In business, we believe that what you cannot measure cannot be managed.

While it seems obvious, unfortunately, many companies seem to overlook the fact that costs can be managed much better when you set a budget for the project.

The work you outsource, or employees you hire for a project, while being your biggest assets, are also going to be your biggest cost.

It is therefore essential that you know the path of your project, calculate costs accurately, and allocate resources properly.

In fact, it is one of the most critical elements of project accounting.

When you have a realistic budget in place, you are well-equipped to deal with how to manage expenses for maximum efficiency and also search for methods to save money without compromising on the quality of your services or the project’s outcome for your customers.

ALSO READ: How ERP Can Improve Business Efficiency?

3. Focus on Growing your Revenue

The most valuable metric that a business can employ to evaluate its status is revenue growth; it is the most strategic path to profitability in the long run.

The formula for revenue growth is used to arrive at the revenue your company earns in a specific period, and then comparing it with the revenue earned in previous time.

For example: profits from this quarter can be compared against the last quarter, or from the current financial year to the previous financial year, and so on.

Revenue growth goes beyond saving costs and sales as a shortcut to profitability.

It focuses on building accountability across the organization and includes strategies for marketing and pricing, human resources, and project management.

ALSO READ: Benefits of Implementing ERP in Banking Industry

Cost-Benefit Analysis

We briefly touched upon cost benefit analysis as a method to improve cost efficiency.

Let us take a closer look at it.

A cost benefit analysis can help a business to strike a proper balance between becoming cost-effective and cost-efficient.

It is a methodical process of reviewing used by companies which assesses the decisions about what to let go of and what to retain.

The analyst conducting the cost benefit study makes a summary of the potential outcomes or rewards expected from a specific situation, and from it, reduces the total expenses associated with performing that action.

Some analysts are also called in to create models to assign monetary values to intangible items like costs and benefits associated with living in certain cities.

For example, accommodation could be hugely expensive in city A but jobs may be many, and salaries high – with readily available public transport.

In this case, the benefits are likely to outweigh the costs.

ALSO READ: What is Goods Received Note (GRN)? 

A cost benefit analysis includes financial metrics like money saved or earned because of decisions to undertake specific projects.

It may also include intangible benefits, costs, or impacts as a result of the decision – for example, employee morale, customer satisfaction, goodwill, loss of reputation, etc.

Eventually, the outcome of the analysis is used to verify if it will be financially feasible to take up a certain project, or the company should not pursue it due to lack of benefits.

The cost benefit analysis often considers the element of opportunity costs; the opportunity cost offers the alternative benefits that could have been realized if a specific alternative had been chosen in the place of the one chosen now; it is the opportunity you missed or had to forego due to choosing this specific opportunity.

This enables project managers to measure the benefits from the alternatives rather than only concentrating on the current choice and its benefits.

As the cost benefit analysis considers multiple options and the potential missed opportunities, it is a thorough process that enables more informed decision making.

ALSO READ: ERP vs CRM

Conclusion

Keeping track of all expenses related to inventory, procurement, HR, and operations can be extremely daunting if done manually or when you use disparate systems.

You are likely to have errors, redundant or duplicated data, and other issues.

A cloud-based solution like Tranquil ERP offers a unified solution that will help you be both cost effective and cost efficient. Schedule a FREE demo to know more!

When one corporate entity merges with another, or takes another entity over, the process is called mergers and acquisitions, or M&A.

When this happens, there is obviously, a lot of accounting work that’s required.

Today, we will look at one of the accounting elements in M&A, Purchase Price Allocation.

ALSO READ: Cost Reduction Strategies in Procurement

What is Purchase Price Allocation?

PPA is an accounting practice whereby the purchaser or acquirer assigns a price to the assets and liabilities of the company they are acquiring.

It is a crucial step and is also mandated by regulatory authorities.

Previously it was mandatory only for acquisitions but now it is compulsory for mergers as well.

ALSO READ: What is Asset Depreciation?

Components of PPA Allocation

1. Net Identifiable Assets

This refers to the net value of the assets of the company being acquired, after subtracting the total amount of liabilities from the total asset value.

The identifiable assets are those that have a certain value at a specific time and whose benefits can be identified and quantified reasonably.

They denote the book value of the assets on the acquired company’s balance sheet, and include tangible and intangible assets.

2. Write-up

If the carrying value of the asset is lower than the fair market value, an adjusting increase is made to it.

The amount to write up is decided when an independent valuation specialist determines the fair market value of the target company’s assets.

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3. Goodwill

Goodwill is an intangible asset, which is paid additionally beyond the company’s net asset value.

In accounting, it’s calculated as the difference between the purchase price and the fair market value of assets of the target company.

Most accounting regulatory bodies insist on revaluation of recorded goodwill annually, and record impairment adjustments if needed.

It is sometimes amortized over the years but never depreciated.

It must be noted that the costs related to M&A like consultation, advisory, and legal fees are not considered in PPA.

The acquirer must record all costs that are charged for each service, as per accounting requirements.

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Performing Purchase Price Allocation

On the conclusion of an M&A deal, accounting regulations make it necessary to do PPA valuation.

Its chief aim is to assign a price that’s to be paid to purchase the target company and then distribute it to the assets and liabilities purchased – which should reflect the fair market value.

These are the steps:

• Assign the fair market value of identifiable assets – both tangible and intangible – that you purchased
• The difference amount between purchase price and combined fair values of assets and liabilities to be allocated to goodwill
• Ensure newly acquired target’s assets and assumed liabilities reflect fair value through adjustments
• Note the computed balances on the acquiring company’s pro-forma balance sheet

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Purchase Allocation Asset Sale Adjustments in M&A

The acquirer’s balance sheet will show the acquired company’s assets which must reflect the adjust fair values.

The assets written up or down may include:

• Intangible assets like goodwill and patents
• PP&E or property, plant, and equipment
• Inventory and stocks

The fair value of tangible stocks, especially PP&E forms the new base for the schedule of depreciation, and intangible assets acquired if any, may be amortized over their expected lives.

Depreciation and amortization can affect the net income of the acquirer in the future.

If these amounts are high, the net income of the acquirer is likely to decrease immediately after the M&A.

Goodwill Creation Accounting from Fair Value Adjustments

Most acquisitions include a ‘control premium’, because shareholders need some incentive to approve the sale.

Goodwill which is the excess left after the net value of assets serves as a plug to ensure that the accounting equation stays true after the deal is closed.

Goodwill determined after PPA is verified annually but not usually amortized.

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Identifiable Intangible Assets

If an intangible asset is identifiable – that is, recognized as separate from goodwill and is measurable at fair value; and it’s related to legal or contract rights even if they are non-transferable.

Intangible assets can be separated from acquisition targets and sold or transferred freely.

The PPA Process

Let us now look at the purchase price allocation methodology:

Financial Statement Integration

Once the deal is closed, the integration of the acquired company starts, and the transaction must be properly noted in the financial statements, because the consolidated annual report must now also reflect the company that was acquired.

However, it’s not as simple as merely getting the balance

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Accounting Principles Alignment

There are likely to be differences in the accounting principles of acquirer and acquired companies; so first of all, alignment of the acquired company’s statements with the acquirer’s accounting principles needs to be done.

Otherwise, anomalies may crop up later.

Allocating The Purchase Price

The next step is allocating the purchase price that was paid to the acquired assets and the liabilities taken up – or what we call purchase price allocation.

This is a little dicey as the purchase price could be paid in cash and equity, or deferred payouts.

This complicates defining the purchase price value.

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Fair Value Adjustments

It is essential to have an accurate estimate of the purchase price, so that the goodwill amount can be calculated.

Goodwill = Price Paid – Net Asset Value.

But it’s possible that the balance sheet may carry a different figure from this.

PPA is performed to assess whether the fair value of assets and liabilities as mentioned in the balance sheet is different from the book value.

In case of differences, revaluation of the assets and liabilities are performed to reflect the fair value, and the goodwill amount is used to balance the account.

Real estate, inventory, long-term loans, machinery and equipment etc. are usually subject to revaluation.

Identifying, Recognizing, And Valuing New Assets and Liabilities

The acquired company may have assets and liabilities that were previously not ‘recognizable’ in addition to the fair value adjustments for the balance sheet items.

A reputed brand name for a product that was internally developed, for example, would not show up on the balance sheet.

During acquisition, the buyer would have definitely taken this brand into consideration to set the price they were willing to pay – and paid some goodwill for that.

If so, reporting standards mandate that the brand name be recognized and valued in the account books.

IP, contracts (favorable and unfavorable), customer relationships, databases etc. are other similar identifiable items.

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Goodwill and Cash Generating Units

Once the PPA is done, the residual value is goodwill – what the company hopes to monetize in future from future assets like that caused by future customers.

As per most accounting regulations, goodwill is checked annually to determine if the business can recover it.

If it’s seen that it can’t be recovered even in part, it means there is impairment of goodwill.

To supervise the long-term recoverability, and if there are several units generating cash, the smallest asset group like a business unit that generates assets independent of the rest of the business, the final amount of goodwill must be assigned to them.

Challenges For the Controller

The financial controller who performs the PPA may not be part of the M&A team; they also may not be well-versed in this type of accounting as mergers and acquisitions are rare events.

Hence it can be very challenging for them.

They have to find out the agreed price of share purchase, actual purchase

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Unexpected Impacts

The PPA can affect the future balance sheet too.

Like, amortizing a newly identified brand name will lower the net profit, reducing the capacity to pay dividends.

It is therefore essential to carry out an analysis prior to the PPA so that these elements can be discovered.

Creating Actual Value

The M&A deal is a cycle, where every step affects the next.

Ideally, an analysis conducted previously to identify assets and synergies acquired and to give an idea about financial statements after the deal, is essential.

Financial controllers performing the PPA should be properly supported with documentation so that the work can proceed quickly.

This helps in ensuring delivery of promised ROI post-transaction – the last step.

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Tips for A Favorable Merger and Acquisition Deal

Identify the Correct Deal

This can be done either by selecting business units or companies actively, or by responding to auctions or one-on-one offers in the market.

Here it becomes important to properly set your corporate strategy, pick areas of growth, and dispose of activities that are not productive, or not core business activities.

Pricing and Offer

The initial evaluation of the target company, and analyzing the ease of difficulty of the integration, and determining the suitable legal and tax structure to implement, along with its impact on pricing.

Perform due Diligence

This is very essential; you must evaluate the actual value of the company, and examine aspects like cash flow, balance, the operational and synergistic benefits, corporate culture, integrity, real estate analysis, and so on.

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Execution

Following the due diligence, an agreement is drafted with the terms of the sale, and the relevant regulatory bodies and authorities are informed, and the closing procedures are performed.

Delivering Returns

On the completion of the transaction, it is essential to achieve the expected results.

This includes things like realization of synergies, and ensuring that the acquired business does not come to be considered a non-core activity that compels you to re-sell it without any value added to it.

This sometimes happens in future reassessments of the acquired business.

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Performing a purchase price allocation can be a daunting and time-consuming task if you try to do everything manually. However, with the right accounting software, the tasks are streamlined and automated; with robust asset management software, you can access the correct value of assets like machinery and land etc. with just a click. Tranquil ERP has all this and more, and can ease the task of a merger and acquisition. If you’re unsure how this happens, do schedule a FREE demo, and we will walk you through the software. Our team will be happy to explain everything and answer all your queries.