According to the Small Business Administration, smaller businesses employ about half the nation's workforce and create 60% to 80% of new jobs each year. With the current economic climate, SMEs or small and midsized enterprises -- like large businesses -- are looking for every penny of savings to shore up resources, so they can weather this economic storm. Before cutting jobs or conducting layoffs, one place organizations can look to save big right now is in their supply chain. How a company manages its inventory can help boost the bottom line almost immediately.
Between cost of money, variable storage costs and obsolescence, inventory carrying costs can range from 15% to 25% of total inventory value on an annual basis. On a million dollars of inventory, that translates to at least $150,000 of additional expense, potentially wiping out already thin profit margins. In fact, one of my customers told me that he recently was ordered to reduce inventory by $10 million to offset lower sales. Throughout my career, the only way I have seen that successfully done is through razor-sharp supply chain planning and execution. It can be done, though.
A Better Way
Historically, small and midsized enterprises have managed their supply chain through a fairly manual process -- tracking sales and inventory requirements on simple Excel spreadsheets. This approach is the most risky and, unfortunately, the most inaccurate. A great myth is that the sophisticated software to help predict and manage the supply chain is cost prohibitive. However, affordable tools are available to help even small and midsized enterprises manage inventory more accurately.
"Good" IT Spending
Despite the economic environment, the Computing Technology Industry Association reported that 51% of small and midsized enterprises plan to increase their technology spending in 2009. This reflects the need for them to automate operations and increase staff efficiency.
While IT spending may be an 'easy to cut' expense right now, software that can save 15% to 25% of margin on inventory costs can be a life saver. With sales pipelines more uncertain today, supply chain visibility and systematic sales and operations planning will be critical to a business' long term health.
Evaluate Carefully
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