Month: July 2023

The best way to find out if you made a profit on a production order is to calculate how much it cost you to produce those goods, and deduct it from the selling price.

But what exactly is the cost of production and how do you calculate it?

To put it simply, the cost of production in the sum total of costs incurred by a company to produce products or deliver services.

Usually, production costs include raw materials and parts, labor, and so on.

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Why Should You Calculate Cost of Production?

Production cost is important for businesses to evaluate their financial health; obviously, the cost must not overshoot the revenues, whether it’s a product that’s manufactured, or service that is formulated and offered.

The company may find it more sensible to discontinue the product or service, or look for ways to reduce costs.

Types of Cost of Production

A company incurs several types of expenses to manufacture a product or service, which are usually categorized thus:

1. Variable Costs

These expenses vary according to your volume of production, rising with an increase in production, and falling with decreased production.

When there is no production, your variable cost will be zero.

Direct labor, utilities, raw materials, commissions, are all part of variable cost.

2. Fixed Costs

These costs are fixed regardless of whether you manufacture or not, or how much you produce.

They are fixed for a specific period – usually one month.

Salaries to employees, rent for facilities, lease paid on equipment, insurance, etc. are fixed costs.

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3. Total Cost

This is the sum total of fixed and variable costs – all expenses incurred in the production of a product or service.

If your fixed cost is SAR 2500 and variable cost SAR 6300, your total production cost would be SAR 8800.

4. Marginal Cost

Marginal cost looks at what it would cost to produce one more unit of product; it shows the total increase in cost because of that one product.

Variable expenses impact the marginal cost only, as the fixed cost won’t change with output level.

Marginal cost is calculated to determine resource allocation to achieve optimal profits.

They vary with volume of production.

Irregular information, price distinction, transaction costs and other external factors impact marginal cost.

5. Average Cost

This refers to the expense of producing one unit of a product.

It can be calculated in two ways:

• Divide the total cost of production by the quantity of products manufactured
• Add the average fixed and variable cost

It is desirable to have a low average cost, as it will help boost profit margins without spiking up expense.

Both these costs affect each other depending on volume of production:

• When average expense reduces, the marginal cost will be lesser than average cost
• When average expense increase, the marginal cost will be more than the average cost
• When average cost is at its minimum or maximum, marginal and average costs will be the same

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6. Long-Run Costs

When companies alter production levels according to their expected profits or loss, they accumulate long-run costs, and is mainly comprised of variable expenses.

When a company produces the largest quantity of products the most economically, it is able to sustain long-run costs efficiently.

These costs are affected by factors like growth or decline of business, altering the quantity of production, leaving a market or entering a new one, and so on.

7. Short-Run Costs

These are costs that can be seen in real-time during production, and they are affected by revenue and variable expenses.

Short-run costs rise and fall with fluctuations in cost and rate of production.

To succeed in attaining excellent long-run costs, you must be able to manage your short-run expenses properly.

This will also help you achieve the business goals of your organization.

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8. Returns to Scale

Returns to scale demonstrate how increased production is connected to the increase in inputs and differs from industry to industry.

Normally, a company has growing returns to scale when production levels are low, diminishing returns to scale when production levels are high, and constant returns somewhere mid-way.

Let’s look at the three stages in a little more detail:

Increasing

This is the first stage and occurs when there is a higher output of products at diminished average per unit cost in the manufacturing process.

For example, you can procure larger volumes of materials at lower costs, and hence make a higher profit by manufacturing more goods.

Constant

This is the second stage when no change occurs in the average cost even when you produce more units.

Whenever output changes in relation to the inputs, we can say that there are constant returns to scale.

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Diminishing

This is the third and last stage, where the average production cost rises in relation to the volume of production, and is the absolute opposite of increasing returns to scale.

This could happen due to any reason like increase in the prices of raw materials over time, and you don’t change a bigger per-unit amount.

Factors That Affect the Cost of Production

Numerous factors can impact production costs for goods and services.

Here are the most common ones you need to remember:

1. Demand

Demand for specific products is likely to grow as a company grows and becomes more popular.

To fulfil consumer demand, the company will need to procure more raw materials, expand production facilities, lease or purchase new machinery and equipment, hire more workers, and so on.

The profits you gain from the increased business can be used to offset the higher cost of production (the expenses we just mentioned).

2. Technology

Several activities that were performed by manual labor are now being carried out by machines.

Businesses today use robots and automated processes to reduce labor cost.

They also purchase sophisticated machinery and equipment, and install the latest computers and technology to update obsolete and inefficient ones.

A considerable amount is also spent in training employees to use the new technology.

While these methods will bring down the cost of manufacturing in the long run, there is an initial financial outlay that they business will have to make.

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3. Exchange Rate

Any business importing materials, parts, or accessories from other countries will have to bear the effect of changes in exchange rates of currencies.

If you are an exporter, it could make your rates less attractive to your customers, and if you are an importer, you may need to look for cheaper alternatives.

4. Material Cost

The costs of raw materials that are necessary for manufacturing can vary depending on the year, the economy, and availability.

For example, the price of steel might rise or fall depending on the financial stability of the steel mill or the costs of international transportation.

The prices of oil and gasoline affect almost every industry due to their association with shipping and product delivery.

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5. Tax Rates

Taxes form an indirect cost of production that have a substantial impact on a company’s yearly overheads.

Tax rates can vary from year to year depending on government changes, or changes in rules.

Hiring new employees, increase in tax on employees, increased insurance rates – all of these can lead to higher cost of production.

6. Interest Rates

Loans and interest of those loans are indirect expenses for a business.

Interest rates are also subject to market conditions, and an increase in the interest means a higher due amount for loan repayment every month.

Therefore, it is essential that you factor in fluctuation in interest rates when you calculate production cost, so that your financial reports can be more accurate.

Measuring Production Costs

While it looks simple, measuring the cost of production is in reality, not so simple.

How exactly do you know what are those costs, and how can you maximize your profits?

You have to monetize the time taken for production, and the raw materials consumed, but how exactly will you put a value to the time of labor, cost of raw materials and machinery?

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Calculating the Cost of Production

You need two main things to calculate production cost in a simple and straightforward manner – fixed and variable costs of producing those goods.

Adding those two costs and dividing that figure by the quantity of goods produced gives you the average per unit cost.

Obviously, your selling price must be higher than the cost of production per unit, if you want to make profits.

1. Identifying Fixed Costs

Total up your fixed costs like insurance, rents, lease payments, property taxes, employee salaries and benefits, equipment and machinery rentals etc.

These costs stay fixed regardless of how much you manufacture.

2. Determining Variable Costs

These are hourly wages for labor, utility bills, marketing expenses, raw material costs, costs of accessories and parts, factory consumables like oils and lubricants, etc.

These expenses may change every day, or for specific production runs, or on monthly, quarterly, or yearly basis.

ALSO READ: Make to Order vs Make to Stock

3. Determining Production Quantity

To calculate the cost per unit, it is essential that you know how many units of the product the company manufactures.

If a company produces 200 smartphones every month, the unit is 200; if it produces 850 kilos of steel a month, the unit is 850, and so on.

It is important to remember that all measurement units are the same.

If we count production for one month, we must look at costs incurred in one month, and if we count units produced in a quarter, we have to consider fixed and variable costs in a quarter.

4. The Formula to Calculate Cost Per Unit

Now we have all the numbers we need.

So, you add the fixed and variable costs, and divide this figure by the number of units produced by the company.

Now we have this formula:

Total Cost of Production / Total units produced = cost per unit
Where total Cost = total fixed cost + total variable cost

Let us follow the example of the company that produced 200 smartphones in a month.

The fixed production cost including rent, salaries, etc. is SAR 24,000.

The variable cost, including labor, utilities, and materials, came to SAR 60,000

Total cost = 24,000+ 60,000 = SAR 84,000.

When we use the formula given above, per unit cost =

SAR 84,000/200 = SAR 420.

Now you know how much it cost you to produce one unit or in this case, one smartphone.

You can easily determine the selling price so that you make a profit on the sales.

You have to remember that you have to check similar offerings in the market and assess if consumers will be willing to pay the amount you have in mind.

After all, you start making a profit only when your product actually gets sold.

ALSO READ: Value Chain vs Supply Chain

Tranquil ERP has a robust production management module that allows you to know the cost of production at a glance so that you can keep it under control. Ask for a FREE demo to know more!

 

A supply chain refers to the system that encompasses every person, organization, technology, activity, resource, and process that is involved in creating and selling a product, beginning with delivering raw materials from the vendor to the manufacturer, up to the delivery of finished product to the customer.

Value chain on the other hand, is concerned with the process and methods by which the raw materials are converted into finished goods – the iterative activities – to ensure efficient production of quality products.

We can say that a supply chain comprises everyone and everything engaged in fulfilling customer needs leading to satisfaction, value chain comprises interconnected activities a company uses to attain a competitive edge.

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Value Chain

The idea of a value chain is not new; in fact, it was first proposed in 1985 by Michael Porter, and American scholar, to demonstrate how businesses add value to raw materials during the production cycle, and sell those goods to consumers.

Value chain managers always consider ways of adding value by reducing shortages, getting product plans ready, working with others in the chain to add value, and so on.

From a business management perspective, there are five steps that allow a business to create value that is beyond the cost of producing and delivering goods and services to customers.

A business can gain a competitive edge if they focus strongly on any of the following five steps:

• Inbound logistics – which deals with receipt of materials or goods, storage, and inventory control.
• Operations – assembly, manufacturing, and other value-adding processes to turn materials into finished goods
• Outbound logistics – refer to the processes involved in delivering a product to consumers like inventory management, warehousing, shipping, etc.
• Sales and marketing activities that entice consumers to purchase products
• Services – that help in the maintenance of a product and enhance its value, like warranty service, tech support, etc.

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The value chain needs HR management, tech development, infrastructure, procurement, and other support activities to streamline these five steps.

For a value chain to be profitable, it must connect consumer demand and company production.

That is, the value chain sequence begins with the customer demand, moving through the whole process of production and ends at the finished product.

These chains give importance to research and development, innovation, quality checks, testing, and marketing.

Supply Chain

The supply chain is made of the flow of materials, information, funds, and products from stage to stage in the process of producing and selling a product to the consumer.

This is an operational management concept, where every step from ideating about a product, manufacturing it, shipping it out to warehouses, and eventually selling it, is a supply chain component.

All the functions that makeup receipt and fulfilment of customer requests, like product development, finance, operations, distribution, customer service, and marketing, make up the supply chain. It is a crucial process for most businesses, involving several links at large companies.

This is why managing the supply chain necessitates a great deal of know-how and skill.

Shareholders and investors are the primary stakeholders in value chains, and it’s the supply chain partners who are crucial stakeholders in the supply chain.

Apart from logistics, supply chain involves coordinating the manner and time of manufacture of products, along with the manner of transportation, and not logistics alone.

Supply chain management is chiefly concerned with material cost and proper product delivery.

With efficient supply chain management, you can bring down costs, which is good for the customer, and boost profits for the producer.

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Value Chain Vs Supply Chain

Both terms are often interchanged, but there are a few differences between supply chain and value chain.

Let’s see the differences categorized by:

Definition

Supply chains are mostly physical, as they comprise a network of persons and businesses that manufacture a product or service, where raw materials are procured and put through the requisite steps to convert them into finished products.

These are then delivered to consumers.

Value chains on the other hand, focus on consumer needs, and start from there.

They analyze how value can be added to the product across the supply chain: this could be features or qualities capable of delighting the customer.

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Process

Supply chain is an operations management process, and chiefly about logistics, where the aim is to efficiently manufacture and distribute the product economically.

Value chain is a business management process, and mainly analytical in nature, collecting information about what customers truly value.

They then consider the best ways to infuse those qualities into the product.

Activities

It is here that the differences between supply chains and value chains can be clearly understood, as value chain activities comprise a wider range of business functions.

It is more visible during customer interactions. Supply chain activities are about physically transporting things economically, quickly and efficiently, whereas value chain activities include market research, marketing etc.

Research helps in learning what consumers want, and advertising helps boost demand for the products; surveys also help in learning if the business is actually delivering value.

Innovation, product development tasks, technology, the right procurement etc. all come under the purview of value chains.

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Order

Supply chain managers think linearly as the main concern is timely and efficient production and delivery, and are also referred to as assembly lines.

However, value chain thinking can impact any stage in the supply chain in any order.

Let us suppose that there is a huge demand for eco-friendly packaging material for a packaged snack.

The manufacturer has to search for and procure such packaging for the new batches that will be produced henceforth.

This will of course increase customer satisfaction, but could mean more expense and delay – at least initially – in the supply chain.

Goal

Supply chains aim at continuously enhancing the production process to become more reliable and efficient.

However, the chief goal of a value chain is to deliver a superlative customer experience, gaining a competitive edge for the business.

For example, supply chain managers would like to use the cheapest and lightest packaging to cut costs; value chain thinking is aligned towards providing a great unboxing experience to the customer – which could motivate the customer to post a great video review online, boosting the company’s reputation.

Customer appreciation and positive feedback are often able to achieve what expensive marketing activities using influencers cannot!

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Steps

There are several more steps involved in value chains vs supply chains.

Supply chain management is about figuring out the best way in which physical results can be achieved quickly and economically.

Value chain managers consider if various other physical results could be what is needed.

For example, let us think about cotton shirts.

Supply chain managers would think about the most efficient and economical way to source cotton that fulfils their requirements.

Value chain managers go a step above and think about whether the company’s customers would prefer Indian cotton or Brazilian cotton; how much they are likely to prefer either of these over the local cotton; and if the extra expenditure can be traded off by how delighted they would be.

They also consider if the customers would be willing to pay the extra cash for the higher quality cotton the shirts are made of.

If market research shows the answers are very delighted, and ‘yes’, the supply chain activity will change from ‘procure cotton’ to ‘procure Indian/Brazilian cotton’.

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Using Value Chain Principles in Supply Chain

Can supply chains use the principles of value chains to create and deliver value for consumers that is above the cost of the products and services they manufacture and deliver?

Not unsurprisingly, the answer is yes.

There are three main areas where these two processes, seemingly at odds with each other, intersect, and give rise to several opportunities for value creation.

Let’s take a look:

Inbound Logistics

We have seen that inbound logistics is to do with the receipt, storage, and management of the resources required for manufacturing products.

Obviously, the value lies in making sure that the precise quantity of materials is at hand, and in ideal condition for production, thereby reducing the time required for manufacture.

By utilizing value chain thought processes, businesses can urge vendors to create and add value through efficient inventory management; for example, the kind of management that makes just-in-time delivery possible.

This decreases the burden of inventory management for that business.

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Manufacturing and Production

In this area, value addition could be mainly discovering methods of cost reduction without compromising on the quality of the final product.

Examples could be acquiring or developing software or new equipment to make the whole process quicker, enhancing quality control to minimize defective and unsellable products, or finding vendors who sell cheaper.

Value chain managers may also look at production activities that enables products to be customized as per consumer needs.

Outbound Logistics

This is where you have to ship the products and deliver them to the customers, and involves storing, collecting, and distributing the products.

Companies can add value by directly delivering to a customer’s business instead of a store, or even by removing the current (old) item when delivering the new one.

Some may even offer a small discount – an ‘exchange offer’, so as to say.

For example, if you purchase a new cooking chimney, the company may remove your old one and take it away, after installing the new one.

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Infuse Value at Every Phase of Your Supply Chain With Tranquil

Tranquil ERP contains feature-rich modules that help you plan demand, manage inventory, ensure quality, procure economically, utilize resources efficiently, and more.

You also get an in-depth and comprehensive view of your supply chains, simplifying your job of implementing opportunities for value addition according to value chain thought process.

these various modules enable businesses to track and study the manner in which materials are delivered from vendors, are transformed into products, and eventually shipped and delivered to consumers.

Ensuring smooth and efficient workflows has its own value, and adds to the supply chain, benefiting the entire company all round.

Tranquil helps in managing your supply chain, infusing value chain thinking within it, and in resolving multiple challenges faced by the business every day.

It has powerful forecasting tools that help in avoiding stockouts, factoring in lead times to minimize delays in production, offers real-time recording and monitoring of data, financial reporting, inventory, and more.

This helps to ensure that every stage of the supply chain functions with identical data set.

ALSO READ: Benefits of E-commerce and ERP Integration

Implement Tranquil ERP in your business to enjoy the many benefits it offers across the company. Schedule a FREE demo to know more. We are happy to answer any query you may have.

 

One of the most crucial aspects of efficient inventory management is ensuring that you have the appropriate amount of inventory where its needed.

Assume you are a company selling electronic appliances in multiple cities across the Middle East; you need to ensure that all your stores have adequate stocks to fulfil consumer requirements.

How will you do that? By distributing your entire inventory equally across all stores?

How much should your central warehouse hold so that online order fulfilment can be carried out quickly?

There are numerous decisions to be made – which brings us to the importance of inventory allocation.

The right allocation strategy can help you fulfil orders quickly, reduce storage costs, and enhance your bottom line.

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What Is Inventory Allocation?

Raw materials like metal and glass, parts of unfinished goods like screws, and goods ready to be sold, are all part of inventory.

Inventory allocation is concerned with the strategic distribution and tracking of various SKUs across multiple warehouses, factories, stores, and distribution centers in a company’s network.

Inventory allocation considers demand forecasts, and tracks and analyses inventory in real-time to boost the efficiency of your supply chain.

Inventory Allocation Explained

Inventory allocation is nothing but the process of strategic allocation of accurate quantities of goods and materials across the distribution network of an organization.

When it is aligned with consumer demand, which itself differs according to geographical locations, inventory allocation ensures that shelves in stores are stocked appropriately and that online orders will be delivered economically and quickly, as the warehouses chosen for fulfilment are the ones nearest to the customer location.

As the requisite materials and components are available on hand and the warehouse space is optimized, manufacture of products can be carried out without delays.

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When Is Inventory Allocated?

Inventory allocation is a continuous process that needs to be adjusted as per the efficiency of your supply chain, consumer demand, availability of warehouse, inventory level fluctuation, etc. continuing with the example of the appliance store, let’s suppose that food processors are close to selling out in your stores in Riyadh but are lying unsold in your Dammam stores.

It makes sense to reallocate those food processors to Riyadh so that you can continue to meet consumer demand there.

Inventory management software keeps track of stock levels, allowing you to see where you need to allocate your inventory for maximum revenues.

The Need for An Inventory Allocation Strategy

The knowledge of how much inventory is required in every warehouse, and how much you can store, will significantly help in optimizing your supply chain.

It helps to optimize inventory levels, avoid under and over-stocking, and reduce storage expenses.

E-commerce inventory levels tend to always fluctuate, and more so if you have multiple sales channels.

Inventory management software helps to track inventory in real-time, giving you a clear idea of the status.

A tech-driven strategy of inventory allocation can help in mitigating risk and streamlining your distribution network.

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The Risk of Overstocking

One of the easiest things to do to ensure fulfilling consumer demand is ordering a lot of stock; however, it is hardly the most economical.

It can raise your carrying costs substantially.

You are also quite likely to end up with dead stock – spoilt, expired, or obsolete products, which can’t be sold at the usual price.

You have to plan how you can optimize inventory levels by factoring in emerging inventory trends, turnover, and historical data.

The Risk of Overselling

You may suddenly see a huge spike in demand for any reason like trends, FOMO effect, etc.

You may realize to your horror that you don’t have sufficient stock to meet this demand, and are forced to take several backorders.

This is not an ideal situation, as customers have to pay first and wait for a while before their product is shipped.

In case the customer has placed orders for multiple products and a few are available currently, you would want to ship them out immediately, but it also causes a split shipment.

While this is not entirely bad, your shipping and packaging costs will be higher.

To meet high demand caused by seasonality or special promotions and to meet future demand, be sure to stock adequate inventory.

Efficient Multichannel Management

When you add more sales channels, you have to track inventory forecasts, reorders and inventory levels across multiple sources, making inventory allocation more difficult.

Of course, the right software like Tranquil can help significantly, allowing you to track inventory from a single dashboard.

Building a Foundation to Scale

When you implement technology, you can make informed decisions about inventory allocation to save time and money, and build the base for your business to grow.

However, it can take some time and money at the outset, and be a bit daunting to get used to.

The benefits of tech implementation are experienced in the long term.

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Benefits of Inventory Allocation

The total cost of inventory includes all costs related to orders, shipping, storage, lost revenues in the form of stockouts, dead stocks, carrying costs, and labor expenses.

By effectively allocating your inventory, you can reduce these costs and ensure optimal stock levels across your supply chain to meet consumer demand quickly.

You also need to know your current stock, and what has been allocated to future orders to help replenish the current stock.

The money saved can be reinvested in marketing and growth activities.

The right inventory allocation ensures that the correct materials are available where required for production; manufacturing can be carried on smoothly and without delay, without having to wait for materials or parts when there’s a surge in demand.

This helps to fulfil consumer demand and build loyalty.

In retail, proper allocation can ensure quick shipments and on-time deliveries, as inventory gets stored closer to customers who order more, and delivery times are shortened.

It is especially valuable for delivery of perishables as every day of improper allocation shortens their shelf life.

To put it in a nutshell, inventory allocation:

• Brings down inventory cost
• Enhances ability to fulfil consumer demand
• Optimizes stock levels throughout the supply chain
• Brings down delays in manufacturing
• Reduces losses in sales
• Quicker shipping
• Faster deliveries

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Challenges of Inventory Allocation

Inventory allocation can be very daunting without proper technology and systems.

Without real-time visibility into your inventory, every decision you make about storage, reordering, and production, can become guesswork.

Without knowing the inventory allocated for future demand fulfilment, you could end up with wrong quantities allocated to incorrect locations or channels, leading to avoidable carrying costs.

Obviously, no technology can foresee every change in consumer demand, every possible bottleneck, or shortage in inventory that could affect the allocation process.

Natural disasters, political unrests, and other unpredictable events can stop manufacture, delay shipping, and destroy warehouses.

It is imperative that you have backup plans to deal with such circumstances.

ALSO READ: What Is a Balance Sheet?

Inventory Allocation Methods

There are several methods used to allocate inventory; however, the following are the most popular:

1. Pull Allocation

Inventory is allocated as per consumer demand – you will avoid overstocking and ensure low carrying costs.

However, if demands shift suddenly, you may have to rush to re-allocate your inventory.

This method is typically followed by companies selling custom or specialty products, or those that repair products calling for new parts that depend on pull allocation.

2. Push Allocation

This is the opposite of pull allocation; here the inventory is ‘pushed’ out to buyers based on demand forecasts.

For example, a retailer may stock up on excess TV sets a few months before a major sports event like the Olympics or Soccer World Cup.

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3. Just-in-time Allocation

This inventory allocation method is a combination of push and pull methods, and aims to have inventory on hand that is just sufficient to meet demand.

A manufacturer may have materials and parts on hand, but wait for demand to spike before they begin production.

Restaurants may freeze bases, or prepare half-cooked dishes which can be fully cooked when customers order a dish.

However, in situations of supply chain disruption, as it happened during the pandemic, this can become problematic, and it may be wise to have adequate safety stock.

4. Manual vs. Automated Inventory Allocation

Small businesses often perform inventory allocation and management manually, with the help of spreadsheets and stock books.

While this can cause errors, it may still be reasonable if you have a limited product portfolio.

However, when your business grows and you add more products, locations, vendors, customers, regions, etc., it becomes essential that you automate.

Tranquil ERP can track inventory in real-time, monitor consumer demand, streamline processes like allocation and order fulfilment, and more.

ALSO READ: What is Mobile CRM?

Inventory Allocation Best Practices

Each industry has its own peculiarities, and each business, its own requirements; there isn’t a single ‘right’ way of inventory allocation.

Keep these guidelines in mind:

Do Market Research and Study Regional Demand

Inventory levels should ideally match consumer demand for inventory allocation to be successful.

This means carefully analyzing market trends, geographical patterns, customer behavior, and anything else that may impact decisions.

By researching the market, you can understand how much inventory must be allocated across your distribution network, and more.

Like, research says that 50-inch TV sets are the most popular; so, after you allocate a greater number of 50-inch TV sets to all your locations, you also need to track sales and inventory levels to make sure that you have adequate supply to meet the demand.

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Prioritize Items with Shorter Shelf Lives

Perishable items like food, medicines, cosmetics, toiletries, flowers etc. must be prioritized according to their expiry dates.

Items due to expire the soonest must be allocated to wherever sales are the highest, to keep losses low.

This rule can be applied to items which are flash-in-the-pan – short-lived popularity.

Use Real-time Data

Real-time inventory level tracking through the supply chain can give you a fair ideal of how to allocate inventory, and replenish it.

By using demand forecasts and analyzing data, you can improve knowledge about trend identification and customer demand patterns, and take better inventory allocation decisions.

When you proactively use the data, like seeing where you are selling through and where you are not, you can move your inventory to ensure it gets sold through.

ALSO READ: Common ERP Myths You Should Be Aware Of

Automate Where Possible

Automating inventory allocation when your business grows can free your employees from having to track stock levels manually across locations to help meet consumer demand.

Automation eliminates human error and reduces labor expenses, monitors inventory across the supply chain, shortens order time and replenishment, optimizes storage, and enhances revenues.

Factors to Consider in Inventory Allocation

You must be systematic and data-driven when it comes to inventory allocation.

You must consider:

• Customer demand – This is indicated at the rate at which inventory levels decrease. Forecasting tools can give a better idea about potential demand, factoring in historical data.
• Stock levels – It is imperative to avoid both over and under-stocking so that consumer demand is met, carrying costs are low, there are no stockouts, and perishables are sold quickly.

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• Storage space – Inventory should be stocked as close to where needed as possible, so that it can be delivered speedily; you need to consider available space so as to not overcrowd.
• Work-in-progress – Also has to be considered for allocation by tracking across the supply chain to ensure availability when needed and avoid delays.
• Reallocation – Can be performed to accommodate demand shifts, provided it does not incur heavy cost.

Tranquil can inform you where inventory must be allocated and managed with real-time visibility into inventory. It automates tracking, allocation, replenishment, etc., ensuring inventory is available where and when its needed. Schedule a FREE demo to see how your business can benefit!

 

All manufacturers and most retailers have warehouses to store their products; it is essential that these warehouses are efficiently managed to ensure smooth operations.

It is only then that your employees’ safety is ensured, costs are minimized, and customer orders are shipped out and delivered in time.

A poorly managed warehouse can cause you to lose money and customers, when they don’t get orders on time.

You may also face problems like overstocking or stockouts.

So it goes without saying that optimizing your warehouse to ensure maximum efficiency is extremely important.

ALSO READ: Latest Trends in Procurement

How can you achieve this efficiency?

We have some tips for you:

Ways to Improve Warehouse Efficiency

1. Hire An Efficient Frontline Manager

A frontline manager who is able to support and encourage warehouse staff to be more productive using the right tools, feedback, and processes, is the need of the hour.

To ensure smooth warehouse operations, picking, packing, inventory management, shipment tracking, etc. have to be performed efficiently – and this calls for a reliable frontline manager.

They must also be able to recognize important areas that can be improved and prioritize worker safety above all, in the warehouse.

Obviously, good leaders are required in every workplace.

A warehouse manager not only must be very organized, they should be able to maintain their calm even in pressure cooker situations, and must continuously look for methods to improve communication and working conditions to streamline warehouse ops.

ALSO READ: Benefits of ERP- IoT Integration

2. Optimize Labor Efficiency

You can either create efficient picking plans or use warehouse management software to generate them.

To minimize travel time, it is essential that you study material usage behavior and place the most frequently used items grouped together near the front of the warehouse.

Products that are sold together frequently should be ideally stocked near one another.

You can avoid delays in picking and streamline warehouse operations by storing the items that are picked the most in locations that are the most accessible.

3. Optimize Available Space

You may feel that the space you have in the warehouse is not enough; warehouse expansion is an option, but an expensive one.

You need to consider if it will be worth the extra money you will spend – are your sales going to increase enough to justify the expense?

Another thing you need to consider is whether you are making the best use of the space that is available to you.

Vertical space is often not considered, but it can substantially help you to overcome space constraints.

Pallet racking is a great solution, if done right.

It must be remembered that you also have to guard against clutter and congestion – even on the outside.

For instance, you should avoid parking areas close to your entrance or exit points as this could impede speedy loading and unloading.

The inside space should be so laid out as to facilitate logical movement flow.

ALSO READ: Emerging Trends in Supply Chain Management 

4. Lean Inventory

Following a lean inventory approach is critical for warehousing – not just manufacturing.

This means you only stock exactly what you need, and nothing extra.

You should minimize or eliminate safety stocks, and have a contract with vendors to make more frequent deliveries of smaller quantities of inventory.

Of course, to achieve this, you need to calculate how much material or product gets used every week or month, and how much time it takes for products to reach you once you have placed the order.

You will also have to consider if your product is subject to seasonal demand, and check the market trends before you set your ideal inventory levels.

5. Organize Workstations

When workstations are well organized, your employees can carry out tasks smoothly and quickly.

To achieve this, many warehouses follow the 5S method.

This stands for – sort, set in order, shine, standardize, sustain.

It is designed to minimize the clutter at workstations and to make them safer and more organized and workflows can be smooth.

You can also consider implementing mobile power carts and workstations, enabling employees to be nearer the activity points and minimize foot traffic for more speed and efficiency.

ALSO READ: What is Demand Forecasting? 

6. Smart Storage Strategy

Your storage strategy must facilitate the smooth and easy movement of forklifts to and from the warehouse.

By making separate walkways for pedestrians, you can improve warehouse safety and efficiency.

Here are some pointers for an efficient storage strategy:

7. Choose the Right Containers

It is vital that you use the correct containers to store your products; do your research and evaluate your requirements before you decide which ones you want.

They must allow easy loading of products in such a way as to make the most of the space in it.

The containers must be chosen according the products that need to be stored.

For example, medicines and medical products have regulations regarding the type of containers required for storage.

ALSO READ: What is Batch Scheduling and What are Its Benefits?

8. Select the Right Pallets

Pallets of varying strengths and durability are available in the market, and each type has its own drawbacks as well.

You can simplify the storage and transportation of goods by choosing the ideal pallets.

The most common pallet types are:

• Metal – the most durable and sturdiest material, capable of tolerating high temperatures and corrosive materials, making the most suitable for pharmaceutical and food products
• Plastic – light, durable and the most economical, suitable for apparel, footwear, packaged snacks and so on
• Wood – the most versatile material which can be made into several designs and shapes, and they can be recycled too.

It’s also important to think about how the pallets will be used.

For instance, does your warehouse use forklifts or pallet jacks, where will they be housed – in the racks or on the ground; and whether they will be able to bear the weight of your inventory.

All these in combination must be considered to decide on the type of pallet to be used.

ALSO READ: Route and Van Sales

9. Optimize Racking

We have already seen how vertical space can be used by implementing tall racks and storage units.

You can also make sure you have the ideal equipment for picking and storing material and can optimize racking.

You must consider the accessibility, strength and size of the racking, and choose the most suitable types of racks.

Use flow racks for small items, and pallet or cantilever racks for big items.

It is also essential that the racking is scalable, so you should be able to enlarge them as your business grows.

This way, you can get more life out of your racks rather than replacing what you have once your needs increase.

10. The Right Packaging

Several types of packaging are available for use in warehouses, and you will have to compare the benefits and drawbacks of each type before purchasing any.

You will have to be especially careful about choosing the packaging material for perishable products so that they don’t get spoilt in transit.

ALSO READ: What is Negative Inventory?

11. Standardize Workflows

From the moment a product enters the warehouse till the time it goes out, and every other movement in between, must be according to a set workflow.

In the absence of that, warehouse employees will work how it suits them – but it may not be efficient and productive from the point of view of the company.

However, when these workflows are automated, all employees can be made to work within the same guidelines.

It also becomes easy to monitor the performance of individual employees against set yardsticks for various segments.

If issues arise in fulfilment, an audit can be quickly performed to identify the bottleneck in the workflow and remedial action can be taken.

ALSO READ: What Is Cloud Data Protection?

12. Be Flexible

One of the biggest issues you are likely to face with regard to warehouse efficiency is that the methods that succeeded last year may not succeed this year, and so on.

New technological advancements may also emerge, which you can leverage.

Therefore, it is essential that you continuously assess your operations and search for ways to enhance your operations.

Let’s say you want to deploy mobile workstations; however, they may not be the best suited for your warehouse.

You’ll have to go back to the drawing board and look for other options.

When you are flexible, it becomes simpler to adapt to the fluctuating market dynamics, and change your approach when what you initially planned does not work.

ALSO READ: A Guide To Inventory Stock Valuation

13. Security

Warehouses are places with huge potential for injury; the rates are pretty high as compared to other workplaces.

An injury to even one employee can throw your operations into disarray, and bring down employee morale.

Therefore, it is crucial that employee safety is made a priority.

Every incident, no matter how small, must be thoroughly investigated, so that employees feel that they can point out potentially hazardous situations or equipment that they notice.

There should also be proper plans for bringing the employees back to work after they have recovered from the injury.

They can be started on light work initially, and moved to more complex and physically challenging tasks once they are fully fit.

14. Automation Tools

While small warehouses can manage with manual picking, you may find this is not ideal when your business (warehouse) expands; this can hamper productivity.

With optimal picking routes, manual pickers can pick about 60 to 80 products per hour.

However, with the use of sorters, conveyors, and such automation tools, this can go up to 300 products.

Of course, you will be required to shell out a good amount of money to automate; however, the ROI delivered due to the increased productivity will make it worth it.

Inventory accuracy will be much higher, labor costs will come down, and shipping will be faster.

ALSO READ : Physical Stock Verification and Its Advantages

15. Use the Right Tech

We live in a digital age, and technology has permeated every aspect of life.

You can increase productivity and precision in warehouses as well, with the help of technology.

This can be done by using software to manage warehouses, in addition to automation solutions.

Using AI and machine learning, you can generate optimized picking routes, minimizing travel inside the warehouse by employees.

This helps them to complete tasks faster, and with less fatigue.

How efficient your warehouse is, will have a direct impact on the efficiency of the supply chain as a whole, and of course, your revenues.

An efficiently run warehouse could mean the difference between success and failure for your business.

ALSO READ: Balance Sheet: Definition, Uses, Elements

Implementing a robust, secure, cloud-based warehouse management solution like Tranquil can help in streamlining warehouse operations for more efficiency and productivity. Tranquil has a proven track record in the GCC region in delivering excellent solutions for businesses in a wide range of industries. Schedule a FREE demo at your convenience to know more.

 

Asset tagging is a crucial activity for any business that relies heavily on assets for revenue generation.

It helps employees to know where inventory, machinery, vehicles, and equipment are at any given time, using tags and labels like RFID tags, GPS trackers, and barcodes.

Savvy businesses can make use of innovative tracking technology and cloud-based tools to minimize the chances of assets being stolen, getting lost, or misplaced.

Tech can also help in enhancing reliability, improving maintenance, and exercising greater control.

A wide range of industries from retail to healthcare to manufacturing can benefit immensely by tagging assets critical to operations.

What Is Asset Tagging?

Attaching tags or labels to assets for easy identification of individual assets is called asset tagging.

Asset tags also help in tracking data – from location in real time to history of maintenance.

Both fixed and moveable assets can be tagged; it is especially useful when moveable assets are located in numerous locations and warehouses.

It gives a comprehensive view of the assets a business owns.

Asset tagging, used in combination with technology like asset management software allows you to a great deal with regard to asset tracking data.

The global market of asset tracking in 2025 is expected to cross $35 billion; this is making companies aware of the necessity and benefits of tracking assets for their operations.

Asset tagging allows you to collect all sorts of data and store it in a digital register.

The information includes:

• Users
• Real-time location
• Maintenance schedules
• Purchase history
• Depreciation value

Why You Need to Tag Your Assets?

Asset-intensive businesses have been using digital tools to track assets for some time now.

It is very important to make sure that the correct tags are selected to gather data on the physical assets in an organization.

Remember that each type of tag or label is different, and capable of gathering different types of data.

When you tag mission-critical assets, you can make sure that you:

• Prevent theft
• Control inventory effectively
• Track assets in real-time

ALSO READ: ERP software in Warehouse & Fixed Asset Management

Main Benefits of Asset Tagging

Regardless of the type of industry you belong to or what size your business is, it is essential that you are able to tag and track your assets constantly.

It helps you in innumerable ways, one of them which is knowing how many assets your business has.

Let’s look at the chief benefits of tagging assets.

1. Locate Assets Easily

When your business is one that has several moveable assets located in various sites, it can take up a great deal of time to search for a particular asset.

However, if that asset has been tagged, every single asset can be recognized and found immediately.

You should bear in mind that you need to use tags like GPS trackers and RFID tags that have inbuilt real-time capabilities in order to locate your assets swiftly.

The healthcare industry is heavily dependent on proper time management, as even the slightest delay can prove to be fatal.

Asset tagging can help healthcare employees to find medical equipment in a very short time.

In the absence of automated tracking process, healthcare professionals waste thousands of hours a month to search for and find the required equipment.

ALSO READ: Inventory Management Problems and Solutions

2. Bring Down Costs Due to Loss and Theft

Perhaps the biggest advantage in asset tagging is being able to know where a specific asset is at any given time.

Ready availability of such information in an asset register helps businesses minimize the possibility of losing assets that are essential for revenue generation.

These assets need not only be machinery and equipment, but also accessories, spare parts, inventory, tools, and so on.

When assets are under digital watch, the process of tagging assets can help in bringing down the costs that occur when you lose equipment or it gets stolen.

In the construction industry, inadequate asset visibility causes heavy financial losses.

3. Real-time Management

Asset management software is a web-based solution that helps to record movement of assets and provides updated data; it also enables tracking of assets.

By tagging assets, it ensures that there is no data redundancy and that data is well-defined and current.

ALSO READ: What is Negative Inventory?

4. Opportunities to Upgrade

When you implement a cloud-based system, you get scalability; that is, you can easily upgrade the database as your business grows.

With a reliable asset tracking system, you can easily identify the criteria for demand and disposal, and get the organization ready to grow and expand.

Successful Asset Tagging Process

The process of tagging assets is pretty simple, but it is important to get it right.

Let us take a look at the steps involved:

1. Allocating a Unique Identification Number

Each asset must be allocated a unique identification number once they have been purchased, and they type and category of the asset have been defined.

As the name suggests, the identification numbers are all different and unique, and are used to be able to easily identify each individual asset, as distinct from one another in an asset tracking system.

Unique identification numbers help managers and departments to account for assets, maintain, and reorder them as well.

ALSO READ: What is Stock Adjustment and Stock Transfer?

2. Selecting an Appropriate Tag or Label

You can choose from among many options of tags. However, it is important to understand that there are varying characteristics for each asset tag; ergo, what is suitable for one asset, need not necessarily be apt for another.

Businesses have to decide the basis of prioritizing tags, depending on factors like how durable and secure they are, for instance.

These are the tags you can choose for your assets:

• GPS trackers
• RFID tags
• QR codes
• Barcodes
• NFC tags

3. Building the Asset Profile

You have to include the precise data that matches the specific asset when you assign tags.

In this manner, you can build a detailed profile for each asset that you will be able to access through the asset tagging solution.

The asset data for each asset includes the following:

• Manufacturer details
• Serial number
• Purchase Date
• Value
• Condition
• Location
• Usable Life

ALSO READ: Latest Procurement Trends

4. Attaching an Asset Tag

After identifying your valuable equipment and creating a unique profile, you can start to tag your organization’s assets.

To do this, you may need to use mechanical attachments or adhesive methods which are pressure-sensitive.

Are Asset Tags & Labels Durable?

Normally, labels used to for tracking assets are made to be resilient and durable, and are usually available in a wide variety of materials.

Take the example of foil labels; these are often used indoors as well as outdoors for machines and IT equipment.

The graphics are sealed under the label’s upper layer, making them impervious to harsh chemicals, rough use, and severe environments.

If you have expensive and valuable assets, you need to use labels that are tamper-proof, as they are ideal to prevent people from stealing them.

This is because they easily show that they have been interfered with.

Like, the labels may break apart or leave marks behind, or reveal words like VOID or Unauthorized Access, when someone tries to peel them.

Polyester is another material used for labels.

It is used for assets like office furniture.

Polyester labels are those with translucent film that protects the label from liquids like spilt water, beverages, and fluids used for cleaning and disinfecting.

ALSO READ: Challenges Facing Purchasing and Supply Management

Different Types of Asset Tags and Labels

There are several types of tags and labels you can use to create an asset tagging system, and each with its own advantages and disadvantages.

1. RFID Tags

Radio Frequency Identification or RFID tags have been in use for decades; in recent times, department store chain Walmart started tracking consumer assets with RFID tags in 2004.

From that time onwards, the technology was adopted massively by retail giants primarily, though it found use in other industries as well.

RFID tags are available in varying forms with different frequencies attached to them.

Durable RFID tags, passive tags, and active tags are the most popular RFID tags used for asset.

These tags have a long-range and are capable of reading data accurately, allowing businesses to leverage asset-tracking systems.

FRID tech helps in boosting stock accuracy, monitoring condition of products that may spoil in transit – like cosmetics, and so on.

ALSO READ: Ways to Improve the Procurement Process

2. Barcode and QR Code Labels

In 1974, the first consumer barcode was scanned, and since then, barcode labels have been used to tag assets and products.

These labels are inexpensive and easily available, making them very popular in businesses that stock innumerable assets in warehouses, store racks, and so on.

Barcodes consist of vertical bars of varying thickness and spaces that stand for specific alphabets and numbers.

Barcodes can be scanned by smartphones, handheld scanners, or other compatible readers.

QR are two-dimensional barcodes as opposed to simple barcodes which are only one-dimensional.

It is able to contain detailed information about the product which carries that label.

ALSO READ: Debit Note vs Credit Note

3. GPS Trackers

GPS trackers communicate with satellites, triangulate exact location, thus delivering precise location data in real-time.

They are perfect for tracking vehicles, machinery, and other large moveable assets.

GPS systems are ideal for outdoor tracking, and not suited for indoor tracking; they are also quite expensive.

Transport companies, logistics, and fleet management companies use GPS tracking very effectively to locate their vehicles or assets in transit.

They are also sometimes used by large corporations who store assets in mammoth warehouses.

4. NFC Tags

Near Field Communication tags are a part of RFID technology, with the main difference being that NFC tags enable two-way communication.

The data transfer takes place between tags and electronic devices.

NFC tags are capable of storing data in different formats, and up to 4 KB.

They are ideal for asset tagging operations because they have codes that can be identified uniquely.

NFC systems are usually cloud-based, allowing users to access data regardless of where they are and whenever they need it.

NFC tags are attached to assets directly.

On return of assets after use, these tags transmit accurate, real-time information on its location and use through the asset tracking system.

The reason for this is that NFC tags contain high-speed processors, are more accurate and secure, and thus ideal for asset management.

ALSO READ: What is Backordering?

Asset tagging is absolutely necessary if your business needs many assets for smooth and successful operations. It not only helps in tracking assets, but also helps safeguard assets against loss and theft. However, you also need a robust asset management software to be able to properly track and manage your assets. Tranquil ERP has a feature-packed asset management module that can bring several benefits to your business. Do Schedule a FREE demo to know more.

 

Though the world is limping back to normalcy post-Covid, procurement professionals still face several challenges, as the global supply chains have been disrupted – the war between Russia and Ukraine has added to it.

Obviously, procurement managers will have to form robust procurement strategies to keep costs down and get the best deals from vendors.

By studying the latest emerging trends in procurement for the year 2023, managers can decide on the right strategies.

Latest Procurement Trends of 2023

1. Sustainability

The whole world is veering towards sustainability in every sphere and procurement is no different.

Consumers today are conscious, and demand sustainably produced goods, compelling organizations to seek sustainable methods of production; and it starts with sustainable procurement.

Many large corporations are actually aiming for zero carbon emission operations, encouraging small companies to follow suit. ­

By showcasing your sustainable procurement and production methods to consumers, you can stand out in the market and earn a good reputation for being a responsible organization.

ALSO READ: Why Do Businesses Need Purchase Requisitions?

2. Supplier Safety Stock

Vendors were unable to deliver products or had delayed deliveries in the pandemic era, and its repercussions are still being felt today.

The delayed deliveries are still creating problems for many companies.

And now recession is setting in, in several parts of the world.

This is likely to reduced demand and over-supply or availability of goods in this year.

Procurement leaders have to be very careful so as to avoid situations of over or under-stocking, as either can cause huge financial loss to the company.

Inventory management software and forecasting tools can help in determining when and how much to order in such situations.

ALSO READ: Importance and Calculation of Safety Stock

3. Forging Strong Vendor Relationships

It is all the more important now for procurement leaders to build solid relationships with vendors.

It is this factor that will ensure timely delivery of products and materials.

When procurement leaders build robust bonds with suppliers, they can get their assistance to grow their business and can also help in confidence building.

The consumer landscape has transformed, and there is increased digitization, integration, and automation.

These factors are changing the ways of dealing with suppliers and building relationships with them.

When you have an excellent relationship with your vendor you can easily mitigate the common risks associated with procurement.

ALSO READ: Challenges Facing Purchasing and Supply Management

4. Increased Government Involvement

This is going to be one of the most critical of procurement trends.

The world is in a turmoil because of the after-effects of the pandemic and the ongoing Russia-Ukraine conflict, which is impacting international trade.

Disputes are increasing, leading to multiple problems, making it necessary for governments to intervene.

Supply chains are now looked at as important for national security, and the volatile situation can lead to increased government intervention in the sourcing and trading of materials and products.

There is an existing trade tussle between the US and China thanks to the deteriorating relationship between them, and this also impacts global supply chains, commodity prices, and investment decisions.

5. Emergence Of Digital Procurement

With an increasing number of businesses preferring to go digital, procurement also needs more investment to be able to operate efficiently.

Procurement management software helps in streamlining the process through automation of the many repetitive and cumbersome manual tasks related to the sourcing and buying of products and materials.

Digital procurement is faster, more accurate, and enables procurement professionals to divert attention to more strategic activities.

Onboarding suppliers can be digitalized with the right tech, involving digital signatures, online forms and automated workflows.

Compared to the manual process of paper documents and spreadsheets and emailing to communicate and collaborate, the digital process is much quicker and more efficient; not to mention that it causes siloed and disparate information sources.

Of course, modern procurement leaders have to be well-versed with the technology for the system to work properly.

ALSO READ: Difference Between Procurement And Purchasing

6. Prioritizing Management of Vendor Risk

Managing vendor risk is likely to be a top procurement trend not just in 2023 but for the coming years, as it helps in protecting your company from several potential risks like:

• Defective products
• Cyber risks
• Unsatisfactory performance
• ESG commitments that were not fulfilled
• Data breach

Developing a strong system to manage vendor risk will help in the identification and assessment of vendor risk and form strategies to mitigate them as well.

The risks can be handled by performing due diligence on new vendors and monitoring their financial and cyber health consistently.

It’s also important to apply the terms of the contract that safeguard your company and to track if they are fulfilling their obligations.

Procurement leaders will have to play an important part in risk management in a business environment that is becoming more complicated and fluctuating by the day.

Their tasks are likely to include developing supply chains that have more agility and resilience, and deploying tech capable of monitoring and managing risk.

Economists opine that globalization is changing and affecting supply chains badly, slowing them down and making them more expensive.

This means procurement teams will have to ensure that supply chains are resilient and become proactive to detect and mitigate supply chain risks, including those related to regulation and cybersecurity.

ALSO READ: Ways to Improve the Procurement Process

7. Shifting to Strategic Sourcing

Thanks to digital procurement and solutions for contract management releasing in recent years, more businesses are opting to utilize this technology.

This has enabled procurement professionals to shift their focus from mundane work to value-creating work, like strategic sourcing of goods and services.

Strategic sourcing refers to the careful study of the procurement requirements of your company, and finding the most efficient and economical sources for procuring them.

This approach takes into consideration sustainability, ESG concerns and other relevant points.

Experts predict that onboarding suppliers, managing risk, contracting, and similar activities are the ones that are most likely to be digitized and optimized with technology, with procurement leaders turning their attention to strategic sourcing.

ALSO READ: Influence and Importance of ERP System in Different Industries

8. Empathetic Negotiation

The world is moving towards being more empathetic, even in business.

It is important that deals are a win-win consideration; both parties must come up with terms that deliver benefits to each other.

So, while you will of course start off with your demands, it is important to also look at it from the point of view of the other, and then take the middle path.

When you understand what is important to the opposite party and why, what their goals and values are, you can have a successful negotiation.

9. Chief Procurement Officer’s Changing Role

The role of the CPO has been evolving over the years, and has ceased to be merely an operational function.

Today the CPO is a strategic advisor whose services define the business in difficult times.

The pandemic brought to the fore the chinks in the armor of most businesses – and the shortcomings in policies, processes, resilience, and supply chains were made visible.

CPOs need to focus on propelling tech innovations to make supply chains more efficient, dependable, and transparent.

Businesses are inventing heavily in technology nowadays, and that also helps in making the role of the procurement officer a strategic one; after all tech speeds up all tasks that were hitherto performed manually, and allows CPOs to focus on risk mitigation and other high-value tasks.

ALSO READ: Debit Note vs Credit Note

10. Circular Supply Chains

Linear supply chains are being replaced by circular chains, with manufacturers recycling and refurbishing used products to resell.

This trend is happening because of the skyrocketing prices of materials, and to reduce wastage and protect the environment too.

Businesses are reducing spend on raw materials and mitigating the price volatility risk by adopting circular supply chains.

With more companies concentrating on sustainability, circular supply chains are gaining more prominence.

Recycling, waste disposal, and so on are being increasingly regulated by the government, and new regulations to be complied with are being announced.

Consumers are also demanding to know how companies produce and dispose of goods.

Consumers are also eager to be able to return and exchange the products they purchased, either because they didn’t like them, they are defective, or because they bought them by mistake.

They want to be able to get new products in exchange for old ones because of recycling and disposal considerations.

Circular supply chains and economies are increasingly being preferred by companies because they have the capacity to restore and regenerate products, increasing their utility and value.

ALSO READ: What is Backordering?

11. Trade Security and The Continued Price Rise

Industry experts predict that the rise in prices will continue unabated for the foreseeable future, presenting a bleak outlook for international trade.

This means that companies in general and procurement leaders in particular have to focus on becoming more resilient in the coming years.

They have to devise strategies to decrease exposure to the volatility in commodity prices, and develop measures to protect supply chains from risk.

12. Tech Integration

Industries of all types today use automation and AI to a large extent to streamline processes and simplify work of humans.

With machine learning, AI is able to make certain decisions without human intervention, and can therefore be utilized to automate tracking of the supply chain in the near future.

This will help in speeding up processes and minimizing errors while streamlining the supply chain.

Blockchain is another technology that is making its presence felt with its security, superfast processing of transactions, superior transparency, reduced cost, and ability of verifying smart contracts by itself.

We are likely to see greater proliferation of blockchain in procurement.

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

13. Increased Stress on Online Security

With a great many business processes being digitalized, there is a heightened threat of cyber-attacks.

Companies are spending more than ever in ensuring protection for the sensitive information stored in their systems – by implementing robust antimalware software, multi-factor authentication, installing strong firewalls, outsourcing security to third parties etc.

Several companies have begun to hire IT professionals to ensure security, and to handle threats immediately.

They are also responsible for checking that the devices used by employees do not contain any malware, and have appropriate antivirus software installed.

All employees who use tech systems in a company need to know about different types of cyber-threats and the precautions they must take to ensure safety.

ALSO READ: Latest Trends in Asset Management 2023

14. Time for Training

With attrition at an all-time high, companies are striving to retain good employees by showing how much they are valued by providing opportunities for growth through training and rewarding good performance.

Newbies who join procurement teams can be trained in negotiation techniques and how to scour the market for vendors and so on.

Training is going to figure very prominently in the emerging procurement trends this year.

Tranquil is one of the leading ERP solutions in GCC. Procurement as we knew it is definitely undergoing radical transformation; stay ahead of the game with Tranquil. Schedule a FREE demo to see how our ERP and its Procurement Management module can help you streamline your processes, reduce cost, and gain a competitive edge.