Inventory Levels Surge as Demand Drops Away

October 16th, 2022 Transport Intelligence Leave a comment

As an increasing number of listed companies release their quarterly results, the full effects of the global slowdown are becoming clear. Whilst a minority of companies – especially in the automotive sector – are still plagued by shortages, most are struggling to clear bloated stocks caused by over-ordering.

Sportswear manufacturer Nike has been the latest to report slowing demand for many of its lines which has led to its inventories increasing by 44%, according to Reuters. Investors worry that to clear this stock there will be a program of mark downs and this, combined with a slowdown in discretionary spend by customers, will result in lower margins. This is also a problem for US retailer, Bed Bath & Beyond. Its gross margin was affected by an accelerated inventory clearance, whilst it also had to contend with an increase in port fees due to the levels of congestion still being experienced.

The yo-yoing inventory levels in the retail sector – both in the US and Europe – have been caused by the classic ‘whiplash’ effect of under-ordering, leading to amplified shortages throughout the supply chain, followed by over-compensation. As a result of the lag between placing the orders and their delivery – several months later – products are piling up even as inflation and interest rate rises cause demand to fade. Inflexible sourcing practices have failed to keep pace with the market. As Richard Hayne, CEO of Urban Outfitters, put it, ‘We got hit by what I guess I would call a ‘sonic boom’ of inventory because we had tried to make earlier and earlier purchases.’

In the consumer electronics sector, weakening global markets have led Apple to tell its suppliers to reduce production volumes of its iPhone14 with implications throughout its supply chain, not least for semiconductor manufacturers. The global demand constraints will be sector-wide and as Nabila Popal, research director at IDC, commented, “High inventory in channels and low demand with no signs of immediate recovery has OEMs panicking and cutting their orders drastically for 2022.” Upstream implications are exemplified by statements from two chip manufacturers: Micron said that it was reducing its capital investment in production in 2023 by 30% and Kioxia (formerly Toshiba Memory) stated that it was also adjusting down production by around 30%. The glut of chips – in some sectors of the market at any rate – is expected to lead to a 15-20% cut in pricing.

The situation in the automotive sector is rather more complicated. Whilst finished vehicle production has been impacted by the same whiplash effects as seen in other industries, many companies are still seeing supply chain shortages, especially of semiconductors. Part of the reason for this is the long lead time taken to design and build chips to meet regulated and certified industry standards. The longer design cycles mean that older style chips are typically used which have lower margins for the chip manufacturers. Hence there is little incentive for them to prioritize their production over more lucrative, faster speed chips. That being said, some auto companies have one a better job at sourcing sufficient chips than others. Mercedes, Volkswagen, Hyundai, BMW and Volvo all say that the problems are in the process of being resolved. Others such as General Motors, Ford, Honda and Bosch (a tier 1 supplier) see shortages continuing into 2023.

Archives, Commentary, Global Trade Daily, Special Reports

3 Simple-Yet-Effective Ways Product-Based Businesses Can Increase Monthly Profits

February 8th, 2022 Nathan Liao Leave a comment

In order to thrive, businesses must have a healthy bottom line. Have you recently taken a long look at your product-based company’s financials and realized that its overall profit is much lower than you expected? Even though your business is making a ton of sales every month, the numbers don’t lie — profits may be much lower due to the money your company has to shell out each month for payroll, the costs incurred for manufacturing your products, and other overhead expenses. This can definitely be quite frustrating for any entrepreneur!

Now you may be thinking, how exactly can I increase profits without having to make massive changes in my enterprise’s operations? Is there a way to grow net profit without the need for more sales or marketing outreach? Well, wonder no more! In my experience as the CEO and founder of CMA Exam Academy (a Certified Management Accountant exam review program), I’ve discovered many simple-yet-effective ways a product-based business can increase its monthly profit. Here are three of them that I’ve encouraged other entrepreneurs to follow:

Prepare & Review Your Budget Now to Save Later

Your profit may be much lower than you thought it would be because you never set up a budget, or you set one up in the beginning of the year or quarter and then forgot about it. Don’t let this be the case any longer! Your monthly budget is your guidebook of exactly what your enterprise needs to function and deliver its offerings to customers. It is important to take the time to put together a spreadsheet that lists exactly which costs are needed for each month’s operations, including subscriptions for your CRM and sales management software, payroll, manufacturing essentials, etc. Include EVERY single cost, no matter how small it is! Better yet, use an accounting system to track all of it.

Once you prepare this budget, it’s time for the second step: comparing it to your business’s actuals. You may have written down the monthly overhead costs in your budget so they are set in stone, but your actual expenses could be much higher without you even knowing it! So take your last month’s financial statement and review the expense lines to identify the largest variances from your budget. For example, you may discover that the costs of office supplies or cloud-based file storage are higher than you budgeted for. Once you note these discrepancies, you can make changes to ensure the actual expenses match your budget.

Look for Waste in Production Processes

You may be completely unaware of waste that occurs throughout your production process. For example, a process that you use to manufacture your products may result in a lot of wasted materials, which can be really costly and lower your overall profit. So see how you can lower or eliminate the waste altogether. Assess all of your production processes to pinpoint any waste and consider changes that can be made to fix it. Even a small adjustment in the process could drastically reduce the waste, so this is a must-do step for every product-based company!

Waste can also refer to costly, unnecessary manpower in an inefficient process. For example, say you have several people working on one element of the production process, when in actuality only one person really needs to work on it. In this case, the extra manpower is a wasted cost — it can even be lowering the overall efficiency of the entire process!

Try to Negotiate with Vendors

Do you work with an array of vendors whose products are used to create your final offerings? For example, do you purchase bulk materials from several sellers to create your business’s products and then buy packaging supplies from another vendor? If so, see how you can negotiate with them to get the best prices for these items. Here are a few ways you can do this:

See if You Can Hammer Out Discounts for Early Payments

Every business owner wants their invoices paid on time so that they always have the funds available for operational expenses. Therefore, see if your vendors would be open to offering you a discount for paying your monthly invoice early. Even if it’s a small discount percentage, it can really add up to a ton of savings! For example, say you usually buy $4K worth of materials each month from one seller. If you can negotiate a 5% discount for paying your invoice early, you will save $200 a month! And if you secure 5%-off early payment discounts with every vendor you buy from, all of the savings would really add up and increase your monthly net profits!

If a seller isn’t open to an early payment discount, see if any of their competitors would be open to one. If one of the competitors is, mention this to your current vendor and it may persuade them to offer you one as well. They would likely much rather agree to a small early payment discount than lose your business altogether to one of their competitors.

Negotiate Pricing

Kind of going along with the last point, see if you can negotiate pricing with your vendors. Again, reach out to your vendors’ competitors to see what kinds of pricing options they offer and how they compare to those of your current vendors. If any of the competitors offer the same materials for better prices, see if your current vendors would be willing to offer the same prices. If they are not, then consider switching vendors — even if the pricing difference is just $50 a month, you will end up saving $600 a year! Always consider the long-term savings.

To Wrap It All Up

Are you looking for ways to increase your business’s net profit? You can do just that by preparing and reviewing your budget now to save in the next month(s). On top of this, assess your production processes to eliminate costly waste. Also see if you can negotiate with your vendors to secure discounts on early payments and lower the prices for your monthly purchases. Following these simple-yet-effective steps may help you save a lot of money and boost net profits, in turn improving your company’s overall bottom line.

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Nathan Liao is the founder of CMA Exam Academy, a top Certified Management Accountant exam review program. As a CMA and CMA coach, Nathan mentors accounting and finance professionals in over 80 countries to earn their CMA certification in as little as 8 months. The unique review framework in CMA Exam Academy has proven to be the key to his students’ outstanding success in attaining their dream of earning the Certified Management Accountant certification. www.cmaexamacademy.com

Archives, Global Logistics, Warehousing

Should a Business Deploy a WMS in SaaS or License Mode?

December 27th, 2021 Fabien Bergeron, Key Account Manager, Generix Group Leave a comment

Your operation has outgrown its ERP’s inventory management capabilities. To efficiently support activities in the warehouse, you will need to implement a Warehouse Management System (WMS). But which? And how should it be deployed? On-premises? On the cloud?

With so many options on the market and a variety of implementation models, it can be daunting to select the WMS best adapted to your operation. In what follows, we take a closer look at two deployment models, SaaS and license acquisition (on-premises), and discuss some of the reasons why most distribution and manufacturing operations should favor the former over the latter.

SaaS vs. License for a WMS Solution

When purchasing a WMS through a license model, licensees are in fact buying a product that they then own. Typically, companies obtain the rights (albeit, often limited) to the actual software and its source code through a single, high expenditure. They must then implement the WMS on privately owned servers – either on-premises or external.

Meanwhile, by subscribing to a SaaS WMS, operators gain access to the software and its functionalities, but do not own the product itself. The WMS remains hosted on the service provider’s servers, which operators access via the internet. Instead of one initial expenditure, as with the license model, companies pay monthly or annual fees to use the WMS and benefit from the provider’s maintenance and support services.

One key difference between the two models, then, is that a license buys operators a product, the WMS itself, whereas a subscription to a SaaS WMS provides access to the software and to a range of adapted services. Companies that decide to purchase a license must therefore purchase these services on top of the WMS itself. Given the high initial expenditure required to purchase a license, this can have a serious impact on a company’s financial agility.

Total Cost of Ownership (TCO)

Some might argue that, over time, subscription fees will amount to a larger TCO than the license model. This is not the case. Hypothetically speaking, a SaaS WMS solution that runs on local infrastructure could possibly be more expensive than a purchased WMS. However, since users typically turn to SaaS solutions precisely to avoid on-premises deployments, the TCO of a SaaS WMS will always be significantly cheaper. This is true, for instance, of Generix’s SOLOCHAIN WMS.

When determining the TOC of a WMS license, companies must consider the costs of acquiring the technology and infrastructure needed to run it. On top of the hardware, they must also think of the ongoing maintenance costs to ensure that the solution always runs optimally. And because the WMS is implemented on private servers, TOC must also include the costs of a dedicated inhouse IT team to develop, integrate, support, and improve the solution.

A SaaS WMS is hosted on the service provider’s servers, which spares companies from such expenses. With SaaS, there’s no need for an expensive infrastructure upgrade or a specialized local IT team. The subscription fees cover the use of the WMS itself as well as maintenance and support services from the provider.

Scalability

Since we’re on the topic of maintenance services, let’s look at what companies can expect when comes time to develop and update their WMS.

Because SaaS subscribers are paying for a service, not a product, they do not have to wait or spend more of their precious capital to benefit from the software’s newest version and functionalities. The service provider in fact has an incentive to keep developing its product: the better the service, the more likely they are to retain and grow their customer base. And since the solution is hosted on the provider’s servers, the implementation and integration of new modules is typically a painless operation – at least from the subscriber’s point of view!

This is not the case under the license model. In that case, the developer’s main source of revenue comes from selling new versions of the WMS. It, therefore, makes commercial sense for them to withhold new functionalities until they can market a new, complete version of their WMS. For licensees, this means that they are at the developer’s mercy when it comes to scaling their system. It also means further implementation and integration fees, which adds to the solution’s TOC.

There’s yet another, somewhat collateral advantage to the SaaS model. With SaaS, a relationship naturally builds between subscribers and the service provider that enables a rich feedback loop. Thanks to constant retroaction from users, developers can scale the solution with modules and capabilities that are truly adapted to their client’s real requirements. This is far less likely to happen with the license model where the relationship with the vendor often ends once the terms of the contract have been met.

This last point might explain part of the success Generix has had with its SOLOCHAIN WMS/MES solution in SaaS mode. By developing their system in collaboration with users and external partners, the engineers and developers at Generix have designed the only full featured WMS/MES solution featured in Gartner’s Magic Quadrant.

System Availability

Prospective buyers sometimes worry that a SaaS WMS is more at risk of becoming unavailable, if something goes wrong, than a product that is implemented on local servers. That worry is unfounded, as a SaaS solution is often the safest option between the two models when it comes to availability.

Under a subscription model, service providers commit to an SLA where they guarantee the system’s uptime. Generix, for example, guarantees that its WMS will be up and running at its clients’ operation 99.9% of the time. If anything were to go amiss, the provider is entirely responsible for providing a solution and has every possible incentive to do so as fast as possible.
On the other hand, when something goes wrong with an on-premises or privately owned WMS, companies must scramble to find the resources to fix the issue. If their IT team is unable to solve the problem, a WMS malfunction can severely slow down, if not completely halt operations for hours as they wait for external support. And that support, of course, costs money.

The Take-Away

When Microsoft saw that Google’s Workspace, which is only available as SaaS, was gaining on its Office suite, the developer moved its solution to the web and created Office 365. Since then, Microsoft has been able to reverse the tide and solidify its share of the market.
SaaS solutions are not a fad. As we have seen, TCO, scalability, and the system’s availability make the subscription model a very attractive solution. This is especially true to SMBs and companies with limited access to capital. A SaaS WMS like SOLOCHAIN is an affordable technology solution that offers everything you need to transform operations in your warehouse.

Generix Group North America provides a series of solutions within our Supply Chain Hub product suite to create efficiencies across an entire supply chain. Our solutions are in use around the world and our experience is second-to-none. We invite you to contact us to learn more.

This article originally appeared here. Republished with permission.