March 23, 2011
More and more companies are moving into the realm of selling their products online, or starting up specifically to do so. Many typically focus initially on the web store, and as orders begin to come in and volume grows, they have to deal with managing their inventory, purchasing and shipping of orders. Frequently the back-end processing is manual, Excel-based or shoehorned into an entry-level accounting system. The idea is that “if we grow beyond this, we’ll then implement new integrated systems.”
If you’re starting an online sales business, be aware that at some point in the future, if you’re successful, you’ll become a victim of your own success. Your manual or disconnected back-end system will become a millstone around your neck, and either become a drag on your ability to grow sales, or a cause of inefficiencies and potentially customer dissatisfaction. Statistically, you’re most likely to only start looking at integrating your web store and back-end system seamlessly and efficiently once you’re already in this mess. But there are many benefits of not waiting until that point. Here are three reasons to integrate your systems early:
- Web store platform: many of the less costly basic web stores do not play nicely with others, or provide a basic level of integration with one or 2 basic bookkeeping programs. That may be fine if you’re only ever going to be handling 10 or 15 transactions per day. But if you grow too far, too fast, on such a platform, you may have to change your web store to a completely new platform before you can even begin to work on systems integration. And that can end up being a massively disruptive and costly exercise. It’s much easier to change your web store earlier on, or even better, start off with a plan in place for integration that shapes your decision on the platform to start off with.
- Personnel: a seamlessly integrated system both requires and allows for a different level of employee in the warehouse and to some extent in the office. If you put integration in place early, you avoid hiring / firing issues, retraining of staff, and resistance to changed processes. I’ve seen a company add two people to the accounting dept. because the incumbent bookkeeper refused to change from a stand-alone accounting system to another one that could integrate with their online store, and she’d been at the business too many years to be retrenched.
- Avoid losing customers: if you don’t have an integrated inventory management system at the back-end of your web store, with accurate up to the minute availability data, you’ll accept orders and payments from customers and be unable to ship what they’ve bought. Do that to me more than once, and I’ll probably never buy from your web store again.
By integrating your online sales with a robust back-end inventory, purchasing and accounting system as early as possible you avoid these and other pitfalls that frequently limit the growth potential of many businesses.
March 14, 2011
It’s time to tame the excess inventory beast, to slay the dead stock dragon.
In this excellent analysis of the true cost of holding inventory, Vijay Sangam provides a thorough explanation of why it costs money to hold too much inventory. Many entrepreneurs are (rightly) very concerned about the consequences of not having sufficient inventory to meet customer demand. But this concern frequently translates into gross overstock, and if you don’t realize how much than can cost you, you have no way to assess, evaluate and optimize your inventory levels.
When I previously wrote about dead stock, I glossed over the carrying costs of inventory somewhat. But this just reinforces the point, and I’ll say again: most small and medium-sized distributors are, at this moment, carrying dead stock that is costing them money.
So is it time for you to start actively managing inventory? Try using this calculator to calculate your inventory carrying costs. The results may scare you.
March 8, 2011
Following on from a recent post, let’s revisit the question of how much Inventory management Software costs. For this purpose, we’re going to assume that you’re looking at Inventory / Accounting software – a fully integrated ERP system that includes the appropriate level of inventory management functionality for your business.
So how much should this cost? The most accurate answer is…”it depends”. Two of the chief factors influencing the cost range will be number of users, and level of functionality. For the latter, some influencers include:
- lot tracking and expiry date needs
- single vs. multiple warehouse
- units of measure – single or multiple
- complexity of pricing and discount rules
- bar code integration
- handhelds for picking / packing
- level of sophistication for replenishment
Michael Burns, a respected industry consultant, suggests using an estimate of $2,000 – $3,000 per user for software license fees, and then at least the same amount again for implementation services. Using this rule of thumb, for 15 users you’d budget between $60,000 and $90,000 all in. My feeling is that, if you need all the influencers noted above, you’d likely fall pretty close the upper end of this range, whereas if you did not require most of them, the lower end of your budget range could be around $35,000.
Then, of course the advent of SaaS complicates this further. You’d use a similar approach to estimate implementation fees, but then eliminate the license fees and replace them with the monthly SaaS fees – and how do you budget those? Well, in addition to the influencers discussed above, SaaS fees will also vary based on what else is included, the term for which you’re locked in, and the ability of the vendor to subsequently increase monthly fees (beware of this – some SaaS vendors lowball the monthly fee, then a year or two later escalate it by 40% or more, feeling that they have you trapped).
We’ll explore budgeting monthly costs for a SaaS environment in a future post.