Author: TRANQUIL

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

Cycle stock is a critical element of inventory management.

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

ALSO READ: Tips For Efficient Stocktaking 

What Is Cycle Stock?

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

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

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

Safety Stock Vs Cycle Stock

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

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

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

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

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

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

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

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

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

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

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

ALSO READ: What is Negative Inventory?

What is the Importance of Cycle Stock in Business?

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

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

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

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

Managing Cycle Stock Inventory

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

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

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

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

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

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

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

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

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

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

ALSO READ: ERP software in Warehouse & Fixed Asset Management

Benefits of Forecasting Cycle Stock

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

These are the main benefits you get from forecasting:

1. Optimize Revenue

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

2. Fulfil Customer Demand

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

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

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

ALSO READ: VAN Sales and Route Sales

3. Save Costs

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

4. Business Performance Insights

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

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

5. Lower Inventory Costs

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

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

ALSO READ: How ERP Can Improve Business Efficiency?

6. Conserve Safety Stock

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

7. Avoid Emergency Purchases

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

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

This can be avoided with forecasts.

ALSO READ: Challenges in Procurement and Supply Chain

Cycle Stock Inventory Accounting

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

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

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

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

Here are some common methods:

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

ALSO READ: Benefits of ERP in Accounting and Financial Management

Calculating Cycle Stock with EOQ

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

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

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

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

ALSO READ: What is Job Costing?

Cycle Stock Inventory in Supply Chain Management

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

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

No wonder businesses focus a lot on SCM nowadays.

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

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

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

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

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

ALSO READ: Comparison of Sales Orders and Purchase Orders

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

 

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

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

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

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

ALSO READ: Ways to Improve the Procurement Process

What Is Cross-Docking?

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

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

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

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

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

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

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

ALSO READ: Guide on ERP Software in Warehouse 

How Does Cross Docking Work?

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

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

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

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

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

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

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

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

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

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

ALSO READ: What is Dead Stock?

Cross Docking vs. Drop Shipping

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

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

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

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

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

Pre-Distribution vs. Post-Distribution Cross-Docking

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

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

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

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

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

When is Cross-Docking Used?

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

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

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

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

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

Why is Cross Docking used?

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

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

Advantages of Cross Docking

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

ALSO READ: Top Tips For Efficient Stocktaking

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

Disadvantages of Cross Docking

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

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

ALSO READ: Comparison of Sales Orders and Purchase Orders

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

Is Cross-Docking Right For Me?

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

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

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

ALSO READ: A Detailed Guide to Batch Tracking

What You Need if You’re Not Cross Docking

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

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

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

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

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

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

 

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

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

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

What Is Dead Stock?

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

ALSO READ: Tips For Efficient Stocktaking

Dead Stock Explained

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

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

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

Products returned by customers are not considered dead stock.

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

The process takes some time.

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

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

ALSO READ: Detailed Guide to Batch Tracking

Why Is Dead Stock Bad for Business?

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

Let’s visit these factors in some detail:

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

Cost of Dead Stock

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

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

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

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

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

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

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

What Causes Dead Stock? And How to Avoid It?

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

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

1. Erroneous Forecasting

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

This is one of the most common reasons.

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

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

ALSO READ: Factors for a Successful ERP Implementation

2. Erratic Ordering Practices

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

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

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

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

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

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

3. Poor Sales

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

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

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

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

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

4. Drop-in Demand

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

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

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

ALSO READ: What is Negative Inventory?

5. Issues with Quality

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

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

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

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

6. Poor Customer Interest

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

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

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

ALSO READ: What are Backorders?

How To Manage Dead Stock?

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

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

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

This is easier for smaller businesses to implement as well.

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

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

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

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

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

2. Discount it

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

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

ALSO READ: Different Ways to Improve the Procurement Process

3. Donate it

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

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

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

 

What is Stock Taking?

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

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

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

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

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

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

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

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

ALSO READ: A Detailed Guide to Batch Tracking

What is Cycle Counting?

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

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

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

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

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

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

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

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

Why is Inventory Stocktaking Important?

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

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

1. Determine How Efficient your Inventory Tracking is

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

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

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

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

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

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

2. Identify Stock Problems

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

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

3. Ensure you Meet Targets

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

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

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

For instance, you could:

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

Stocktaking and Your Inventory System

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

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

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

Cyclic counting however can render the process less disruptive.

ALSO READ: Route and Van Sales

How to Perform Stocktaking?

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

Before Starting to Count

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

During The Count

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

ALSO READ: What is Negative Inventory?

On Completion Of Counting

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

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

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

Dealing With Stock Discrepancies

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

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

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

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

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

ALSO READ: Challenges Facing Purchasing and Supply Management

How Can you Improve your Inventory Management?

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

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

How Often Should you Take Stock?

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

The frequency could be:

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

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

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

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

Improving your Stocktaking

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

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

1. Barcode Scanners

Manual counting can cause errors, especially in larger companies.

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

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

ALSO READ: Guide on ERP in Production Planning

2. Eliminate Distractions

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

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

3. Organize the Warehouse

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

4. Ask for Feedback

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

5. Consider Dedicated Software

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

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

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

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

 

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

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

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

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

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

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

Both are interdependent on each other.

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

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

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

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

What is a Purchase Order?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What Is a Sales Order?

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

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

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

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

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

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

Sales orders typically contain this information:

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

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

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

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

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

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

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

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

ALSO READ: Route and Van Sales – Challenges and Opportunities

Similarities Between Purchase and Sales Orders

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

Differences Between Purchase Orders and Sales Orders

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

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

They are both connected to the purchase process.

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

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

Let’s take a look:

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

ALSO READ: What is Batch Tracking?

How Both Purchase Orders and Sales Orders Work Together

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

ALSO READ: Important ERP Modules and Functions

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

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

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

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

 

What is Batch Tracking

Batch tracking is in simple words, a traceability system.

It enables you to group together a set of inventory items that share similar properties in a batch.

Batch tracking offers better visibility and makes it possible to track the expiry date of products and trace defective units back to the specific batch it belonged to.

In other words, it optimizes the way inventory is managed across the distribution chain, as it helps to trace your products from start to finish – the complete production and distribution process, till it reaches the end consumer.

ALSO READ: Route and Van Sales

Batch tracking is essential if you are serious about not just efficiency, but quality control – and it is important whether you’re a B2C or B2B business.

Batch tracking helps businesses exercise more control over their inventory by enabling the tracking of batch movement, as well as tracking product development from start to finish.

Inventory batches comprise a specific number of items received on a particular date, for a definite cost.

There could be differences in every inventory batch, even if they are the same type of product.

For example, the expiry date, the exact location of its manufacture, its purchase price, or any other detail could be different.

It is very important to know the differences in products, especially when they are sold.

Apart from expiry dates, batches also help to analyze return dates for particular batches and to respond to customer queries about differences among the products.

Batch tracking also facilitates accurate report generation on elements like profit margins, revenues, and others.

ALSO READ: What is Negative Inventory?

What is Included in Batch Information?

Every batch has its unique details, like a number, purchase price and date, and expiry date.

Every batch is related to a specific item variant; multiple items or their variants are not part of the same batch.

Every batch number for the same item variants has to be separate.

Even though the same batch number can be used for different variants of items, it will still be a separate batch.

Each batch is associated only with a single item variant.

Multiple items or variants cannot be included in the same batch.

Items from one individual batch can be found at several locations.

Batches can be allocated to stock movements and transfers, to perform stock adjustments, and when moving stock from one location to another.

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

Strategies with Inventory Batch Tracking

It is essential that you perform smart inventory management if your business involves products, more so if they are of a perishable nature.

Let us look at some of the most common inventory strategies.

FIFO

This means, ‘First In, First Out, and in this method, products that come in first, are sent out first; this is a strategy employed usually by companies that deal in fast moving products.

LIFO

This stands for ‘Last In First Out, and in this method, products that come in last, are moved out first.

In times of rising prices, it provides a tax advantage.

FEFO

This acronym spells out ‘First Expired First Out’, and it is normally used where products have a low shelf life.

Products with the nearest expiry date are moved out first.

Keep in mind when you choose your strategy, that it will have a significant impact on your logistics.

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

Which Type of Business Requires a Batch Management System?

Batch management systems are necessary to streamline tracking, enabling the effective monitoring of your inventory.

However, this can be managed more efficiently with a robust inventory management system which is a module in a reliable ERP like Tranquil.

Industries like coffee and tea production, production of any type of food items like biscuits, breakfast cereals, snacks, milk powders, and so on, cosmetics, electronics, and any other business that manufactures and/or handles perishable products.

It is not just optional but absolutely essential for businesses in these segments to implement an efficient batch inventory management system as they have to trace raw materials with low shelf-life, or recall products in case a defect is detected later.

The most effective quickest, and easiest way to track the products and their location is by using batch tracking software.

ALSO READ: Important ERP Modules and Functions

What is a Batch Tracking Software or Batch Inventory Management System?

It is a tool that helps you to group and trace products manufactured using the same materials under the same conditions.

It is necessary for discrete manufacturing and businesses that handle perishable goods in addition to batch manufacturing businesses.

The software can help in:

• Tracking expiry date of products – this allows the implementation of efficient inventory management, decreases spoilage, and boosts profitability. In addition to perishable goods, it is also applicable to products that go out of vogue.
• Tracking defective products to the batch it was produced – when you discover faulty products, you can immediately trace them back to the relevant batch, reducing the risk of defective products being released in the market.
• Trace Defective Items Back to Batch
• Tracing your defective products means better transparency with faster and easier compliance for your business.
• Performing effective product recall, as you can easily track the locations of all your products
• Compliance with industry legislation and regulations

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

Real-life Scenario

A customer calls a department store saying that the ketchup bottles they had purchased were already beyond the expiry date.

The customer is of course promised a refund or replacement with fresh stock; however, the store will trace the bottles to the batch, check if any bottles from that batch are still lying in their warehouse, and take them out physically, as well as delete the stock from the system so that no more old ketchup bottles get sold.

Using Batch Management in Manufacturing

We have seen what is batch tracking, and how it can be easily achieved with the help of the proper software.

Let’s now look at how batch management is implemented in manufacturing.

1. Assigning Batch Numbers

Batch or lot numbers are used to trace items in the production process.

You can track end-to-end components, raw materials, supply chain, manufacturing process, up to delivery, as well as the service stages.

Batch numbers are assigned every time new inventory comes in.

Whenever there are complaints about the product from customers, and/or you need to recall a particular batch of products, the batch number helps do this quickly and effectively.

However, you must remember that batch numbers are complex, and doing this manually can be chaotic – you need a proper system that simplifies assigning numbers and tracking them.

It works something like this:

• Every product type is defined as an inventory item
• This is then allocated an inventory level
• Real-time inventory levels are tracked to check the product stock in warehouses
• Inventory levels are further divided into batches
• Real-time updating of inventory batches take place.
• Inventory levels in batches shift whenever inventory comes in or goes out

ALSO READ: What are the Procurement Challenges

2. Centralizing Your Business

Smart manufacturing is the process of creating an “ecosystem” that connects your machinery and tools via the internet, which is essential when learning how to track production in manufacturing.

A robust ERP solution like Tranquil has batch tracking and manufacturing modules that offer the following benefits:

• Predictive maintenance
• Cost reduction
• Automated data collection
• Smoother workflows
• Integrations
• Barcode scanning capabilities

The right batch inventory management software can help you achieve smart manufacturing.

ALSO READ: ERP in Production Planning

3. Connecting Sales Orders to Production Flow

This can significantly help improve batch tracking. When you implement a reliable ERP solution like Tranquil, it will not only help manage your resources but also link your manufacturing and sales, allowing you to check if your finished goods batches are adequate to fulfill sales orders.

It can also tell you if you are running low on finished products, and show you whether you have enough raw materials to create those products.

If the raw materials are also low in stock, you can immediately order the same with your vendor.

When production, sales, and inventory are integrated, you can plan and schedule your production much better.

4. Lean Manufacturing

The lean inventory approach in manufacturing helps to optimize not only inventory storage but your overall business management as well.

Lean manufacturing minimizes wastage from your processes – unnecessary steps in addition to removal of scrap and leftovers.

The appropriate lean manufacturing tools allow you to make your manufacturing process greener, recognize production bottlenecks, and carry out proactive maintenance.

You can implement lean manufacturing and streamline tracking even without a batch tracking system in place, but you won’t be able to be proactive, it will always be reactive actions, and you will not have access to production analytics and actionable insights.

ALSO READ: ERP vs CRM

5. Prioritize

When you refine your production schedule, you can significantly improve the effectiveness of your production tracking.

You can go as per plan to handle predicted demand and decrease manufacturing lead time drastically if you just optimize your production scheduling.

If you manually do this with spreadsheets, you will end up spending a lot of time, and it will have to be updated frequently; it is also not flexible.

For example, if for some reason, your production is delayed or changed in any way, you wouldn’t have a way of accounting for it.

Manually performing batch tracking can end up damaging your reputation as well.

ALSO READ: ERP Software to Enhance your Purchase Management

However, batch tracking and management software facilitate process automation, and schedules can be easily redesigned in case it’s required.

When you follow these steps, you will certainly be on the right track to enhancing your production and batch tracking.

It goes without saying that the important thing here is to find an apt batch inventory management system that will help you track your batches properly.

If your business deals in perishable products or products that can suddenly get out of fashion, it is imperative that you implement batch tracking in your business. Tranquil has robust batch tracking features that can help you trace your products end-to-end. Do schedule a demo with us to see how exactly our software works, and we will be happy to answer any query.

 

When competition keeps becoming steeper by the day, companies have to come up with innovative methods to increase sales and bring in revenue.

Offering their products through multiple methods and channels, in addition to the conventional in-store sales helps companies to reach out to a greater number of customers.

One such method, though not exactly new, is the route and van sales.

Here, the business goes to the customer, instead of customers coming to the place of business.

ALSO READ: What is Job Costing?

What is Van Sales?

Wholesalers sell and deliver products directly to the end customers instead of other businesses, by loading products into their branded vans or other vehicles.

The inventory comprises those products that are expected to be sold on a specific route each day.

The responsibility of building customer relationships, selling products, and introducing customers to newly launched products rests with the driver representatives.

In fact, each van driver is considered to be a distributor, with orders being booked every day; once orders are loaded, the sales representative has to give their approval.

If at the day’s close, there are unsold goods still in the van, the representative can either retain them to sell the next day or return them to the warehouse.

Van sales are looked upon as the backbone of supply chain management for companies in the FMCG and retail sector.

It is a very complex delivery system, as sales tracking can be pretty challenging for companies.

What is Route Sales?

It is simply creating a route map of the customer’s locations for that day – it is actually a part of van sales, not a separate activity.

Route sales agents make sales and provide services as designated to customers on specific routes.

The route sales agent has certain responsibilities:

• Creation of a sales strategy including selling door-to-door, and product demos
• Introducing new products, upgrades, and more to customers
• Studying customer behavior and working with the sales department to stay competitive
• Taking orders, collecting payments, and in some cases, entering into sales contracts
• Meeting targets for sales, keeping records, and updating the management regularly
• Collaborating with other departments to deliver excellent service and settling grievances
• Maintaining demonstration products and promotional material in excellent condition
• Ensuring safety and cleanliness of the sales vehicle, and maintaining it to prevent unexpected breakdowns
  For a business to grow and be sustainable, it is vital that your van sale activity is quick, with proper route management, while you keep costs low. Companies must optimize resources and enhance their invoice to cash cycle without increasing their operating costs on routes.

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

Industries that Use Van Sales

Businesses dealing in products with low shelf life, and/or fast-moving goods, use the van sales method of supply chain management as customers can be serviced quicker and at a lower cost.

1. Farm Goods and Fresh Produce

Retaining the freshness of fresh produce like fruit, vegetables, milk, fish, etc., till it is delivered to the consumer is a huge challenge. Though many online delivery services have made their appearance in the market, there is still tangible demand for fresh produce from retail stores.

Numerous supply chains all over the world are today investing in vans to ensure quick delivery of products to consumers’ doorsteps.

2. Perishable Food Products

Bread and other bakery products, dairy products, batters, prepared foods like sandwiches and salads – all need to reach consumers as quickly as possible as they have very less shelf life.

Businesses that sell such products benefit from van sales as they can reach them to the end-user quickly, and it’s convenient for the customers.

Traditionally, ice cream was the product sold from vans, in many parts of the world; in fact, children would wait for the familiar bell or horn of the ice-cream truck.

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

3. Vehicles and Equipment

This is one sector that has intense competition, and using trucks or vans to cover large areas and sell two-wheelers or machines makes sense.

Some dealers also offer service, and this is of great value in remote areas where the customers are not likely to have access to service options.

Medical equipment and farm machinery are the other two most popular van sale items after two-wheelers.

4. Tech-heavy Products

Businesses that deal in products that necessitate technical support and guidance benefit from van sales.

As dealers go on their routes and demonstrate the working of the product, it becomes easy for customers to make a decision.

ALSO READ: What are Backorders?

5. Businesses with Multiple Low-Priced Products

The global pandemic has motivated businesses that deal with a wide range of products that are priced low, like stationery, art and craft, groceries, cards, gifts, and so on, to enter the route sales arena.

It provides a great deal of convenience to customers who neither have to commute and wait in line nor wait for delivery after ordering online.

Challenges and Opportunities

While route and van sales provide a great opportunity to companies to attract more customers and increase their sales, the van sales process does have some challenges.

Let’s discuss some of them.

1. Finding New Routes

Identifying and managing new routes to get more customers can be challenging if you are a late entrant in that space; it’s true that customers are everywhere – but then so are brands!

Customers naturally purchase from wherever is convenient for them.

So you need to find a way to reach them first.

You will need dedicated van sales activities to reach out to a maximum number of customers, and pitch your products.

ALSO READ: Important ERP Modules and Features

2. Where to Visit on a Particular Day

Van sales can also cater to stores and not just the end customers.

You need to identify the stores to be visited on a particular day, week, etc.

If your driver has the responsibility of calculating store visits, you need to check how much time they spend on each route, while covering customers in that area efficiently.

You also need to check how best to set up store visits – daily/weekly/monthly etc. to cover the whole market, and if store knowledge can help in route optimization.

3. Managing Van Inventory

Picking the products and loading the van is normally the responsibility of warehouse staff, and the driver checks the inventory and vehicle and sets off on his route to sell.

Work out how you can ease the driver’s work if they are able to sell more with every store visit.

Ensure they have a visual representation of inventory and are able to automatically deduct stock with every sale so that they know how much stock they have and can sell.

Check if it will be possible for the driver to restock from a different warehouse or another van if he runs out of a popular product and if it can be added to the current inventory in the van.

Suppose stock delivered to the store was wrongly supplied and is being returned, is it possible to add to current van inventory directly, or send it back to the warehouse and reassigned?

You’ll need to find out the method that saves time for your business.

You will also need to check how to account for stock that’s past the expiry date, or damaged.

ALSO READ: Benefits of ERP for Accounting and Financial Management

4. Time Management

Time is critical; spending time creating orders, adding inventory, promotions, etc. can take time away from visiting other stores.

See if you can come up with quicker and more efficient methods to create order forms, calculate discounts, promotions, bonus stock, and so on, to save time.

Consider preloading bonus discount rules to facilitate immediate calculation.

5. Taking Payments

Though it would be great if the store your driver visited had funds to pay for all newly purchased goods, in reality, stores have credit limits, accounts, and payments to be collected.

You can empower sales reps to block sales if the store exceeds credit limits – based on historical data, or have them get authorization from the head office.

ALSO READ: Importance of ERP System in Different Industries

6. The End of Route Summary

If the vans have an unsold product, you need to calculate and total things like cash, checks, stores visited, products sold, etc., and compare the inventory in the van against the loaded inventory, less stock sold, and add the returns.

You have to check what products need to be stocked for the next day and how much time van drivers need to work out the next day’s inventory, and if it can be done more efficiently.

7. Store Performance from Sales Analysis

Check what products sell fast, and those that don’t, and also from which stores.

See if these stores can be divided to generate reports, which you can use to target specific stores and products for marketing.

You may find brands or products that get sold out more often than others; examine your sales data thoroughly, and you can make discount rules for specific products or selling price of products.

This will automatically show up when the van sales driver visits the targeted stores.

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

Van sales drivers have their own challenges:

• Achieving sales targets
• Satisfying quickly-changing customer demands
• Ensure customer loyalty
• Learn about the competition
• Having to depend on manual admin work
• Promoting products
• Introducing new products
• Working with outdated tech

Advancements in the Van Sales Arena

If you still have route sales drivers on the road working with physical catalogs and taking orders manually on paper, and communicating with the office via phone or email – you need to rethink your method of conducting these sales.

With agents on the road all the time, it is difficult for them to be efficient and focused while performing these admin jobs, while achieving sales targets, not to mention driving their routes carefully.

But now we have van sales apps, and this application can deliver several benefits to your company and simplify the work of your route sales drivers. Let us check out the top benefits:

• The mobile app can be integrated with your ERP solution so that van sales drivers can access real-time information on products, stock, and customers to deliver personalized and efficient service
• The right sales tool can empower your employees and boost their productivity; a few taps on their phone, and they will be able to directly submit new sales orders to your ERP, access all relevant customer information like their credit limit and balance, and order history, etc. This can help them to execute orders quickly and deliver enhanced customer experiences.

ALSO READ: What are the Procurement Challenges?

• Integrated digital catalogs are always up-to-date, and can be used from any place at any time. It can be updated in a very short time, so that there’s no confusion about stocked out products, and new products can be seen.
• Businesses can save immensely on printing catalogs – it’s an expensive affair. They are also often very heavy and cumbersome, and digital catalogs solve all those problems. These can also be sent via email to customers if needed, without shipping costs.
• Digitization and automation help to reduce manual effort and errors; taking orders on paper and calling them into the office can result in duplication or loss of orders or incorrect order recording. All this can be avoided with a reliable van sales application.

At Tranquil ERP, we can help your van sales business with the right technology to support your drivers, and increase sales while bringing in more efficiency. If you want to implement digital transformation in your business, Tranquil can do it for you and help you achieve business growth. Schedule a demo with us to know-how!

 

In certain types of businesses, it is important to track individual costs related to specific tasks or jobs – and this is referred to as job costing.

What Is Job Costing?

Also named project-based accounting, job costing refers to the accounting of expenses and income for every individual project.

It studies every project minutely and breaks down materials, labor, and overhead costs, instead of performing job estimation.

Businesses of all sizes use this accounting tool – especially if they commission individual projects or tasks.

It is most commonly used in the construction industry, but also in manufacturing, law firms, creative agencies, etc.

Job costing allows businesses to assess individual jobs and check if expenses can be reduced when similar projects are undertaken in the future.

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

Features of Job Costing

In the job costing method of accounting, the expense associated with each job is calculated individually, allowing you to identify the jobs that made profits and those which did not.

This provides a template for establishing the cost of similar jobs to be executed in the future.

By calculating the variances or comparing estimated costs with the actuals, it becomes a valuable tool to manage and keep costs under control.

Who Uses Job Costing?

Any business that offers products or services for completing a customer’s project can use job costing.

These are the industries that use job costing primarily:

• Construction
• Shipbuilding
• Foundries
• Automotive garages
• Printing presses
• Film studios
• Hospitals and doctor’s practices
• Private investment firms
• Engineering firms
• Advertisement agencies
• Law firms
• Distribution agencies
• Food processing companies

A business that uses job costing has certain common characteristics like:

• Customized production as per customer requirement
• Distinct lots of products
• Manufactured products are not uniform in nature

ALSO READ: Benefits of ERP Software in Construction Industry

How to Calculate Job Cost

Let us look at the job costing procedure and how the cost is allocated for the various activities:

Materials

• When they are procured and stored in the warehouse – the allocation of any scrap or spoiled material is to the overhead costs initially, and from here it is allocated at a later stage when necessary.
• When they are retrieved from the store and assigned to a specific job, any abnormal loss is directly charged to the cost of goods that were sold. Once the job order is completed, the cost associated with the whole job is moved to finished goods inventory from work in progress inventory.
• When the goods are sold, the asset cost is transferred to the cost of goods sold account from inventory when the sale transaction is recorded.

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

Labour

• The hours logged by an employee are charged to a particular job, and then later assigned to each job depending on the wages paid.
• Direct labor, if traceable directly, is charged to specific jobs, and indirect labor is initially charged to the overhead cost pool from which it is allocated to different open jobs.

Overheads

• All overhead costs are just allocated to the overhead cost pool initially; later, they are assigned to individual jobs.
• Non-direct costs are assigned to open jobs from the overhead cost pools depending on the cost usage measure.
• Standard costs are assigned from the overhead cost pool by studying the historical cost data to determine the per-unit standard cost for each activity. These amounts are then assigned to jobs depending on how many activity units have been performed for each job.
• The allocated overhead cost is subtracted from the actual cost incurred to arrive at the difference. The variances are accounted for in any of the following ways:
  o Charged directly to the cost of goods sold
  o Allocated to each activity like work-in-progress, cost of goods sold, or finished goods, depending on their closing balances
  o Assigned to ongoing jobs of the reporting period

ALSO READ: What is Negative Inventory?

What is Job Cost Accounting?

Now that we have a fair idea of what job costing is, let us now see how to calculate total job cost.

We need to determine the cost of materials, labor, and overheads on each job, and this is how the accounting is carried out.

Calculation of Material Costs

We need to account for every expense associated with materials used for a particular job.

If we talk about the construction industry, this would include everything from steel and cement to lumber and wiring, tiles and paint to screws and switches.

It is recommended that you add a small margin to the exact cost so that you can recover costs related to wastage, delivery charges, and so on.

Calculation of Labor Costs

Here we need to work out how much it costs the business with regard to the salaries and wages paid to all the employees working on a project each day.

You need to multiply the daily payroll amount by the number of days estimated for the completion of the job.

It is possible you have sub-contractors for certain activities that you don’t directly do; in such cases, the costs associated with those activities have to be factored into the total labor cost for each job – it would be a good idea to get estimates from the various contractors you have.

ALSO READ: ERP vs CRM

Estimation of Applied Overhead

Calculating overheads is quite difficult, as exact figures are hard to come by, and you often have to depend on educated guesswork.

Allocating expenses like office rent, administrative expenses, equipment depreciation, and so on, is not straightforward and easy.

Some companies have a policy of applying a flat rate to every project, like say 10 or 15 percent for each job.

An experienced accountant can help in the analysis of your business, and the development of a specific approach to overhead – you can of course, always fall back on a predetermined overhead rate calculation.

If we had to write how job costing is conducted as an equation, it would look like this:

Total Job Cost = Direct Labor + Direct Materials + Applied Overhead

What Is a Predetermined Overhead Rate?

It is simply a calculation used to establish approximated overhead costs for each job in a given time period.

Businesses usually make budgets for a year that mention the estimated activity and overhead for that particular year.

Using these estimates, you can arrive at an overhead rate that can be applied to every specific job.

The equation for calculating the predetermined overhead rate is:

Estimated Overhead / Estimated Activity.

The budget is likely to include various estimates for activities; you should ideally choose the activity that is most directly related to the overhead costs for your company, like the estimated hours of direct labor.

ALSO READ: Guide on ERP in Production Planning

Predetermined Overhead Rate Example

Let’s assume you have a construction business, and you use job costing; you want to arrive at the predetermined overhead rate to use for this.

You estimate that in 2022, you will incur 400,000 Riyals in overheads and that your employees will work 8000 hours.

In that case, your calculation would be:

Overhead / direct labor hours -> 400,000 / 8000 = 5 Riyals per hour direct labor

You can now apply this calculation of predetermined overhead rate to jobs to conduct job costing, as the overhead cost applied.

You will add 5 Riyals to the specific job for every direct labor hour, and this becomes your applied overhead.

This is what you add to the cost of direct labor and materials cost to arrive at the total job cost.

Job Costing Example

Now we have the applied overhead cost – let’s assume that it is 30,000 Riyals. You have spent 15,000 Riyals on direct labor, and 10,000 Riyals on materials. The total job costing is now:

30,000+ 15,000+ 10,000 = 55,000 Riyals. (going by the formula, Total job cost = direct labor + direct materials + applied overhead)

ALSO READ: ERP Modules and Features

Advantages of Job Costing

Since we have seen how we can calculate the total job cost and how expenses are allocated, let’s take a quick look at the advantages of job costing:

• Determine profitability for individual jobs
• Get in-depth cost analysis of labor, materials, and overheads for individual jobs whenever you need
• Ensure greater efficiency by focusing on costs of each job
• Prepare estimates easily
• Calculate variances by comparing actual and estimated costs
• Points out jobs that are not profitable
• Enables drafting of accurate product quotations

When to Use the Job Cost Formula

The exact time to use this formula varies according to businesses, but ideally, it is to be calculated on completion of a job.

A job cost sheet is maintained to record all costs as the job is in progress.

The following is tracked on this sheet:

• Direct materials – used on the job, and their cost
• Direct labor – hours worked by employees and managers on the job
• Per hour overhead costs
• If so applicable, the service product cost or unit cost.

By estimating the number of direct material and labor costs, the job cost formula can be applied to arrive at an estimated total cost; if you use the services of a professional accountant for doing this, fees paid to them are also to be included.

Once the service is completed, the job sheet can be used to draft a final invoice to be generated and sent to the customer.

ALSO READ: How Do ERP Systems Work?

What is a Job-Order Costing?

Job order costing system is used by businesses that regularly create unique products for their customers so that they can easily track every order.

A job order costing system is helpful in ensuring that the effort and resources spent in making a product will be profitable for the business.

There are many factors involved in creating a job order costing system so that we can make sure that the cost of each job is precisely calculated.

This system is used in businesses that receive small orders from customers for unique product batches; here, the price of every product is separately computed.

It also helps to ensure that the product is priced in such a way that it’s not unreasonably expensive for the customer, yet brings in decent profit for the company.

ALSO READ: Benefits of ERP for Accounting and Financial Management

Job order costing systems use financial resources like invoices from suppliers, payroll records, overhead cost allocations, and material costs for information gathering.

Then with the help of a job sheet or job order database, the cost is calculated, while tracking individual products with a unique ID number.

Every item in the system has a record for job cost that shows the materials used in creating the item, the number of employees that worked, the number of hours required in making it, and the overhead cost for the product.

This way, accountants can accurately track the expense on every item, and the present inventory and help prevent the occurrence of unexpected loss.

Documents Used

For job order costing, the main documents used are:

Materials Requisition Form

This helps track materials used and contains information like

• Date of retrieval from inventory
• Unique job ID
• Exact quantity retrieved
• Cost of material items
• Total items retrieved
• Who requested, priced and received the items

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

Job Cost Sheet

We have already discussed earlier how accountants use job sheets to track the spending on each job, it may include:

• Job start date
• Completion date
• Shipment date
• Customer information
• Material, labor, and overhead cost
• Summary of the total cost

Time Ticket

Employees usually submit a timesheet to show work done by them. It includes:

• Employee ID and name
• Job number working on
• List of jobs and date each started
• Hours required to complete the job
• Hourly rate payable
• Total job cost

Are you in a business where it’s essential to calculate the cost of each job? At Tranquil ERP, we have the technology and expertise to make your work simple. Our robust ERP software has a powerful project management module with efficient estimation, activity, and cost features. Do schedule a demo at your convenience to see how this can help your business.

 

The terms human capital management (HCM) and human resource management (HRM) are often used in place of each other but they are not exactly the same.

It is true that HRM and HCM are very similar and they do have commonalities, but they also differ quite a bit.

To give a very simple explanation, HRM is all about fundamental human resource functions that are administrative in nature, like onboarding, maintaining records, evaluations, ensuring compliance with labor laws, handling payroll, employee benefits, and offboarding employees.

ALSO READ: The Must-Have Modules and Features for an HRMS

HCM however, is a much broader term that includes HRM also, but its main focus is maximizing the value and return on the investment made on employees in n organization.

In other words, HRM places stress on the creation and management of processes and systems that allow employees to perform their jobs effectively, while HCM stress ensuring the maximum economic value of employees to a company.

HRM is the foundation on which HCM function grows.

Let’s delve a little deeper now.

What is HRM?

HRM functions ensure that the right person for the right job is hired and that employees are managed efficiently to ensure high productivity.

It facilitates workflow automation and streamlining, and reduces administrative burdens, enabling smooth compliance with regulations – ultimately leading to enhanced productivity, and boosting profitability in the long run.

HRM software is often integrated with ERP software as a module, and includes most of these functions/features:

• Payroll
• Administering of Benefits
• Billable hours, leave, attendance
• Recruitment and Onboarding
• Talent management including performance appraisals.

ALSO READ: Need of Having HR & Payroll Management Software in SMEs?

What is HCM in Business?

The conventional HR admin functions like hiring, payroll, talent management, etc., are transformed into opportunities for enhancing productivity, driving engagement, and boosting business value.

Rather than look at employees as a major cost of operating a business, HCM considers the workforce as a fundamental business asset that can be invested in and managed strategically to maximize its value, akin to any other asset.

You can think of it as a cumulative platform of multiple functions designed to promote business growth and stay on top of workforce requirements proactively.

Defining Human Capital Management

HCM is used to refer to not only the business strategy but also software applications and technologies that help in the implementation of that strategy.

In fact, it is one of the most important technologies that companies can implement to bring about transformation in their business, and HCM is of critical importance in today’s uber-competitive world.

It helps HR professionals to automate and streamline HR processes and empowers employees to perform better.

Overview of HCM Processes

HCM software includes all processes related to HR and employees in their personnel files; they may include the end-to-end business process of hiring to firing/retiring.

That is, from the time a candidate applies for a job, through the hiring process, onboarding, and application for benefits.

Performance evaluation, feedback, and training are used to develop their skills and improve their performance and contribution to the organization’s success.

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

HCM software helps to automate this entire process.

While HCM applications automate processes to ease the work of HR departments, they also afford direct access to employees to their HR files.

This helps employees in matters like getting clarity about payroll, applying for benefits, and so on. The software also helps to track organization charts and reporting hierarchies within a company.

Several organizations depend on word-of-mouth knowledge to learn about the organizational structure, to work out hierarchies, and to whom to report.

HCM software can help bring clarity in this regard.

Why is HCM Important?

Now that we have got a brief idea of what HCM is, let us examine the benefits of HCM.

Both HRM and HCM have become critical functions for any business, as they have realized that it provides a competitive edge if they can develop and manage their workforce better than other companies.

This is especially true for industries where businesses offer products or services that are very similar to others and have low margins.

Here, a clear distinction can be made with HCM.

ALSO READ: Guide on ERP in Production Planning

It is vital that employees in such companies are committed, engaged, and passionate about their roles, and that they stay in their jobs for long periods.

Processes can be automated to usher in greater efficiency, helping to build strong teams and develop talent that will help in business growth through enhanced efficiency and productivity.

• HCM helps to bring out the best in the employees, boosting their efficiency and rendering them indispensable for the company.
• The ideal candidate for a given role can be hired with the help of this software. This is extremely important, as hiring the wrong person can lead to multiple problems and chaos. Whereas, a person who is a good fit, isn’t likely to need a lot of time and energy to train. These recruits can be oriented to the system quickly, motivating them to give their best. Induction sessions must be designed to be interactive, with trainers familiarizing the new hires with company policies and culture.
• It ensures smooth, two-way information flow between employees and management, regardless of designation, eliminating unnecessary misunderstanding and confusion.
• Training and skill development helps to upgrade the current skills and capabilities of employees, increasing their efficiency, and ultimately, overall organizational productivity. In today’s competitive world, it is essential that employees remain updated with the latest developments and technologies in their areas. HCM empowers employees to be independent and adapt to dynamic situations.

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

• Frequent appraisals of employees and giving them feedback, which is imperative for any business that wants to achieve growth, is facilitated by HCM software. Employees are kept informed of management expectations regarding their performance, and reporting systems enable senior management to access the performance details of subordinates.
• Soft skills and personality development can be easily implemented with HCM applications; employees can be trained on communication skills, which will come in handy for troubleshooting, negotiations, client presentations, etc.
• Finally, employees can see where they lag behind and can take steps to improve, thus benefiting the company as a whole.

Key Differences Between HRM Vs. HCM

We have already seen what HRM and HCM are, now let us see how HCM vs HRM stand head-to-head. For that, let us examine the similarities first:

Both applications are about the people in an organization and are solutions driven by data, that can help in crafting innovative workforce strategies and in their effective implementation.

• Automates cumbersome tasks like timekeeping and payroll for greater efficiency
• Integration of chief HR processes helps to improve information flow
• Managers can be freed from routine tasks as employees are empowered to complete tasks themselves.
• Cloud-based software apps help reduce cyber-attack threats with multiple security protocols
• They monitor local and global regulations continuously to ensure compliance with regulatory requirements

ALSO READ : Ways to Improve the Procurement Process?

Differences

The main difference lies in the objective behind the approach of each strategy/software.
While both HRM and HCM play an important part in training, there is a big difference:

• HRM identifies and develops the right training methodologies and software to help deliver desired outcomes like improved employee knowledge and skills, and tracks and measures the success of training programs by evaluating employee performance to see how much they have learnt.
• HCM identifies the competitive skills needed by employees to deliver value to the organization.

HRM takes care of the fundamental HR requirement of small and medium businesses, whereas HCM covers a vast array of functions across the whole lifecycle of employees; it is designed to support the requirements of multinational corporations and large enterprises with regard to payroll and global compliance.

HCM also has sophisticated analytics, cutting-edge data and reporting, and so on.

When you look at recruiting, HCM identifies the employees with the requisite skillset to add value to a company; HRM develops and manages an efficient process for hiring and onboarding that allows businesses to hire the most suitable candidates.

ALSO READ: ERP vs CRM

Should you Choose HRM Or HCM?

Both of these software applications are not mutually exclusive; in fact, most organizations enjoy the best performance when the two are combined – especially in the long term.

Strategic corporate goals can be better met when these two strategies and software apps are used in combination or integrated.

Both systems work towards achieving business growth by making employees the primary focus of all HR functions from recruiting through training and compensation, up to retirement or firing, so that they can reach their maximum potential.

ALSO READ: Benefits of ERP for Accounting and Financial Management

Take the Right HR Solution for your Business

There is no doubt that the Covid-19 pandemic has impacted the way businesses function all over the world; it has numerous implications for HR with regard to productivity, managing virtual workforces, swiftly changing talent pool that makes recruitment tougher, fewer women in the workforce, and providing great employee experiences through innovative initiatives.

ALSO READ: How to Manage Your Business from Home in Pandemic Situation?

Look at the challenges your organization is facing, and what are the requirements for growth. You can evaluate this by:

• Identifying problems – are your workflows complicated, how efficient are the processes, are you maintaining compliance, and more.
• Exploring solutions by examining applications for scalability, robust data and analytics, and global capabilities among others
• Does the software help support growth, boost revenues, and help with not just hiring the right employees, but also retention?
• Compare the software vendor capabilities against the HR requirements you have, and get feedback from employees and other stakeholders to arrive at the right decision.

Tranquil ERP is a cloud-based, robust, flexible, and scalable ERP solution with a powerful HR module that can be tweaked to include whatever functionality your business may need. Schedule a demo to see how it works and how it can benefit your business; choose a time and date that is convenient to you. We will be happy to provide detailed explanations and answer all your queries to your satisfaction.

In any business, managing all the processes and controlling everything becomes more and more difficult as it grows.

ERP systems like Tranquil have become essential for a business that wants to improve efficiency, maintain consistency, and enhance productivity and profitability.

Companies also enjoy a significant reduction in costs, especially working capital, and gain a competitive edge.

Enterprise Resource Planning System is a software solution used by management to integrate business processes into the unified and manageable workflow to manage and monitor critical business processes.

In addition to automating processes like project planning, and sales, it also keeps track of the performance of those departments, and handles payroll, accounting, and other administrative tasks.

The emergence of cloud computing has multiplied options for ERP integration, as compared to traditional on-premise ERP systems.

How exactly do these two types of ERP differ?

To understand this, let’s first look closely at both systems.

On-Premise ERP

In this system, the software is deployed on the company’s servers and made available via internal networks – it was the way ERP was deployed till cloud computing was fully adopted, that is, the mid to late 2000s.

Conventional or on-premise ERP still accounts for more than half of the total ERP market.

As the entire system is on the company premises, it has full control over the assets, and it bears complete responsibility for the safety and integrity of the software; the company also bears the entire cost of the deployment, hosting, and so on.

You would also need to have the dedicated infrastructure, and have an in-house IT department to keep it operational.

This control and greater security are the chief reasons that companies choose the on-premise implementation of ERP.

Industries that handle a lot of sensitive data, like healthcare, industrial, and government institutions, prefer conventional deployment.

ALSO READ: Some Interesting facts about the CLOUD ERP Solutions

Advantages and Disadvantages of On-Premise ERPs

ERP systems deployed on the premises are easy to customize as per the specific needs of that company; in niche industries like specialized manufacturing and most financial institutions, this is essential.

It gives organizations greater control over the software and ensures the safety of the data.

However, mobile accessibility is a huge problem for conventional ERP deployments, as it usually necessitates a third-party client for enabling communication between the software and the mobile device.

This can create problems and confusion.

Cloud ERP

Here, the ERP software is deployed remotely, on a cloud platform, as a complete app.

It is easy to use and has the essential functionality to streamline the processes of most businesses.

It is a set of readymade tools, which may not be possible to modify significantly.

These are lean apps that can be scaled as your business grows, and are available for maximum time thanks to cloud computing.

It doesn’t necessitate complex infrastructure, which makes it ideal for smaller companies.

The industry is witnessing a major shift from conventional to ERP cloud computing.

It enables automation and is flexible, helping to increase the overall workflow efficiency.

It operates as a web app but with access management that’s more flexible.

Though some companies are concerned over data security, cloud vendors actually have stringent data security standards, even conducting audits by third parties to be sure.

This is ideal for companies that don’t require extensive customization, like consulting and recruiting firms, software development and outsourcing companies, and so on.

In fact, heavy customization is not required for most businesses and is mainly sought by the banking and financial sector, industrial orchestrations, and more.

Cloud ERPs are also the first choice of small and medium-sized companies, and startups.

ALSO READ:  Benefits of Public Cloud Computing

Advantages and Disadvantages of Cloud ERPs

Data security is a huge concern for businesses who want to invest in ERP software, as a lot of sensitive information is stored in its database, like employee information, customer information, company financial information, and even trade secrets.

However, with reputed cloud providers, this is not an issue as they employ extremely strict protocols to maintain data security; customers can also get an audit performed by a third party if they are not convinced about the cloud provider.

One of the biggest benefits of cloud ERP systems is the mobile accessibility feature – with some providers even offering mobile apps on native platforms.

The need for any time, anywhere access skyrocketed during the Covid-19 pandemic, with lockdowns forcing most employees to work remotely, from their homes.

Though mobile accessibility gives rise to security concerns, cloud providers give the assurance that the access is strictly controlled with two-factor authentication and other layers of security.

Customization is also possible with cloud ERP, though perhaps not to the extent offered by conventional ERP deployment; but then again, not all types of business require extensive and highly specialized software.

ALSO READ: Benefits of Mobile ERP and Features

How Do Conventional ERP and Cloud Computing ERP Differ?

1. Ownership Costs

Conventional, on-premise ERP deployments necessitate huge investments not only at the outset for buying the software, but ongoing expenditure to manage it, including hardware, servers, and other facilities, trained IT personnel, and so on.

If you don’t already have a dedicated IT department, you may have to create one and invest in hiring and training additional staff.

Moreover, your IT department has to spend most of their time, effort, and money to ensure maximum availability of the software; they have to maintain the server rooms, hardware, and the software.

Cloud-based ERP systems don’t require organizations to make huge investments either initially or even later.

It is simply implemented, and accessed via the computers’ internet connection.

The IT infrastructure is hosted and maintained by the ERP vendor, and they also ensure that the system is up and running with minimal downtime.

Securing the data and protecting it from cyber-attacks is also their responsibility.

This means you don’t have to worry about having dedicated IT staff, or can do with skeletal IT department; they can concentrate on innovation, and strategizing to ensure swift and effective business growth instead of spending energy on the maintenance and management of on-premise systems.

Cloud ERPs are normally paid as you use systems that you can subscribe to, and increase or decrease as per your needs, easing management of your cash flows.

The IT savings add up over time; cloud-based ERPs can cost 50% less than conventionally deployed ERP software.

ALSO READ: How Cloud-ERP Software Helps Saudi Businesses?

2. System Upgrades and Enhancements

Though customization is easier with on-premise ERP, when it is time to upgrade the software, those customizations cannot be easily re-implemented with the newer versions.

When the ERP vendor releases new functionalities and fixes, the previous customization will be lost in the upgrade process.

Your IT team will have to restart the customization process all over again.

That is, the ERP has to be redeployed on all the computers that had it earlier, and re-implement the different customizations and integrations that were part of the previous version of your ERP.

It often happens that to avoid this time-consuming and costly process, businesses just avoid getting the upgrades, and prefer to continue with outdated technology for as long as possible.

However, with cloud ERP solutions, the vendor provides continuous bug fixes, new features, and upgrades, and it is automatically updated in all the user computers.

Cloud ERPs like Tranquil is built on sophisticated and reputed cloud platforms, ensuring that your previous integrations and custom features are retained when the software itself is upgraded by the vendor, without you having to incur any additional expense.

ALSO READ: A Detailed Guide to Retail ERP

3. Improved System Performance and Accessibility

Cloud-based ERP solutions generally perform better than conventionally deployed systems, as the cloud software architecture is designed to ensure maximum performance and availability.

It also affords optimized performance, which can be tweaked to suit your specific needs.

Cloud ERP is also more flexible and can perform a dynamic provision of additional resources to handle the extra workload during surges.

An in-house IT department is not likely to be able to do this; in fact, it is doubtful if they will be able to report system uptime results to management.

Thanks to mobile accessibility, ERP software delivers data in real-time whenever and wherever your team needs it. When sales executives are able to access accurate and relevant information on their mobile devices on the field, they will be able to close deals quickly by providing personalized and immaculate service.

Furthermore, you can save on additional charges of setting up or other ongoing costs.

ALSO READ : Benefits of ERP for Accounting and Financial Management

4. Deployment Speed

It goes without saying that ERP deployment should be carried out after proper planning, and cannot be rushed.

However, cloud ERP is definitely the winner when it comes to deployment speed.

It does not necessitate additional hardware, which means you don’t have to spend time, money, and effort in purchasing and installing hardware, servers, cabling, and so on.

Cloud ERP can be easily implemented across numerous locations, divisions, and subsidiaries, at surprisingly affordable rates.

These differences can eventually mean significant savings in time and money.

For example, a typical on-premise deployment can take at least 12 months to be up and running completely; in comparison, a cloud ERP can be implemented in 3 to 6 months.

Cloud ERP software is easily scalable, and hence more flexible than on-premise ERP software; this means you can add any number of users as you want, depending on the growth of your business.

This is not so easily done in the case of conventional on-premise ERP systems.

You will usually need to provide supplementary hardware to accommodate more users.

ALSO READ: Important ERP Modules and Features

You would agree that cloud ERP systems have a distinct advantage in this pandemic era where social distancing and lockdowns have made remote working quite the norm; also, the cost involved is a huge factor, and if you’re a startup or small enterprise, it definitely makes sense to invest in a robust cloud-based ERP like Tranquil.

Are you wondering how it works and how it can help your business? Do schedule a demo with us, and we’ll be happy to tell you!