02 Nov How to Improve Your Bottom Line With an ERP Solution
For most businesses, the overall goal, or marker of success is profit generation. The more profits a company generates, the better the overall growth potential becomes.
In many cases, this means focusing outward, on driving sales, enhancing marketing efforts and pushing into new sectors or target markets. But, there’s another way to grow or to complement existing growth strategies.
It starts with reducing the bottom line. When a company achieves this, an increase in profits becomes an automatic result. One of the easiest ways to accomplish this is to implement the right ERP solution.
The Importance of ERP Solutions
In what way do you manage your day-to-day operations in the retail industry? Chances are, you rely on software or an electronic solution of some sort. The software you’re using, or are looking into using, is likely a form of an ERP or Enterprise Research Planning solution.
The retail space today looks different than it did 50 or even 20 years ago. Without an online presence, many companies would be unable to compete with others in their field. The growth of online sales has forced many businesses to increase warehouse space and inventory on hand, to provide customization options to customers and to speed up the process between order and delivery. Companies that are unable to keep up are likely to fall behind.
The right ERP solutions make these processes possible. At their core, ERP systems operate off of shared databases that support various functions, often customized to meet the needs of the businesses and organizations using them. These solutions allow employees and team members across multiple units or departments to operate and rely on information that’s housed in the same place and is consistent across all use areas.
ERP solutions are also designed to provide synchronized automation and reporting functions that increase the accuracy and speed available data, providing real-time access to information that can change the way forecasting and decision-making take place.
Working with an ERP solution provides retailers with many benefits, including the real-time data mentioned above, increased compliance measures, reduced risk thanks to increased security, automated daily operations and enhanced customer service.
An ERP system is critical to the performance of most businesses. But a commonly overlooked value and underused application of ERP solutions, especially for those in the retail space, relates to something even more beneficial: a decrease in the bottom line. When businesses are forced to sit on massive amounts of inventory, they’re likely reducing their profit potential and limiting the speed at which they can fulfill orders.
To better understand the potential for reducing your bottom line using an ERP system, you need to understand the tangible benefits that these solutions bring to the table.
How ERPs Impacts the Bottom Line: Benefits You Should Be Aware Of
ERPs are designed to increase efficiencies across all areas of a retail business, from manufacturing to order processing to delivery. But how can it decrease the bottom line to increase profits? Check out a few high-level ways ERP can improve the bottom line below.
- Information flow. In more dated systems and solutions, information flows slowly from one point to the next. This increases the cost of completing tasks and slows the delivery of products. When an ERP solution is in place to help each step flow together, you save time and money.
- Better decision making. In many cases, trend tracking relies on data collected from a past year, quarter or month. The company then makes decisions accordingly. However, when an ERP solution is used to view real-time analytics, delays can be eliminated, increasing the potential for better decision-making.
- Improved insight into operations. Far too often, retailers discover problems long after they’ve caused major trouble. ERP solutions that provide better visibility into daily operations allow management to uncover potential problem areas before they become overly costly. ERPs enable you to plan more proactively.
- Control of inventory. Inventory is a significant expense for many businesses. In fact, according to Capterra, the average U.S. retailer is sitting on $1.43 of stock for every $1 sold. If you reduce the cost of sitting inventory, the potential for increased profits rises. ERP solutions can help business owners balance what’s necessary and on hand with what’s needed and reduce excess.
- Reducing out-of-stock issues. In addition to controlling inventory, ERP solutions can reduce out of stock errors. A P&G study found that average retail and apparel companies have an ongoing out of stock rate of 8%. Additionally, most are unaware, since 46% of retailers don’t use an automated system to track inventory, according to Wasp Barcode’s 2017 State of Small Business report.
- Efficient invoicing. ERP solutions can help retailers increase the speed of invoicing to accelerate the pace of payment. A faster turnaround is always beneficial.
- Reduced errors. In an article published in Strategic Finance Magazine, researchers found that one of the primary causes of manufacturing disruptions is human error. When there are too many touchpoints behind a given process, the potential for error increases exponentially. The right ERP solutions can reduce this by creating standard procedures and automated workflows that connect and communicate to various departments and warehouse locations.
The cost of doing business in the retail or apparel space is high, and you can not avoid some bottom line costs. However, when the right ERP system is in place, you do have the potential to increase your bottom line, as the points and statistics above illustrate.
ERP provides tangible benefits that impact all areas of business, especially the bottom line. Is your current solution up to the task?
ERP Modules and Solutions that Impact and Improve the Bottom Line
While complete ERP solutions can be customized to meet specific needs, finding a “module-based” solution that offers specific applications for specific business needs may be more beneficial. These simple, straightforward solutions can be customized, but are designed for specific purposes to decrease cost – and frustration – in this area.
Regardless of the solution, learning the full potential of the system and putting it to work in every aspect of a business is critical for seeing tangible results.
Solutions and modules that can be used to improve the bottom line include:
Decoration Modules: Options for Transformational Purchase Orders
Transformational purchase orders are becoming more common, especially in the online retail space. In practice, this means an existing inventory item is “transformed” into another item, generally through the help of a third-party vendor.
Transformations could include the addition of a logo or graphic, an embroidery feature or another element of design that modify the original product into something else, something customized by the customer. While the end products are frequently in high demand, the cost of production can rise rapidly due to the price of the original item and the processing cost associated with the third-party vendor. This is even more apparent when multiple vendors must be involved in creating the final product.
However, when an ERP solution is used that automatically creates payables for the additional fees and costs and drop ship information is automatically created the process can be smoother and more reasonably priced.
Apparel Matrix for Reducing Bottom Line Costs
During the order process, a single item may be available in multiple colors, sizes and styles. A matrix eliminates confusion and frustration by allowing customers to enter their desired quantities. The system takes each of these variations into account while tracking inventory levels to ensure the availability of each item, noting any product that may need to be backordered. This simplifies the process, eliminates the need for excess inventory and helps maintain clarity throughout the ordering process.
Order Processing and Returns Management
A common area of excess bottom line growth relates to order processing and returns management.
An order life cycle includes generating quotes, taking orders, fulfilling orders and invoicing. If any one of these processes functions poorly, the bottom line will increase unnecessarily. However, when you apply an ERP module designed with these processes in mind, on-time delivery and improved satisfaction levels rise. This drives sales and profits while lowering the costs of returns and order processing by reducing manual labor.
Purchasing and Forecast Management
The retail industry uses forecasting methods to track trends to better anticipate, plan and purchase for the potential actions of consumers. The process involves an evaluation of past months, quarters or years to predict what could come during a given season or other period. The data that’s collected is adjusted based on any external factors that may have been at play. Then, inventory is ordered and stocked to prepare.
When any part of this process falls short, the amount of inventory on hand can be too much or too little, increasing the bottom line and negatively affecting an organization’s potential for profits. In fact, a 2015 study found that retailers lost $1.1 trillion in revenue due to over- and under-stock situations.
To better accommodate this process while eliminating the potential for lost revenue, purchasing and forecast management modules can streamline forecasting processes while integrating other solutions. They can automatically generate reports to allow buyers to make more informed purchasing decisions. The solution can decrease the bottom line when used to its full potential by preventing unnecessary inventory purchases.
Accounting and Financial Management Modules
A substantial contributor to low bottom lines relates to the cost and error potential of manual data and order entry.
An ERP solution designed for all areas of accounting and financial management – general ledgers, accounts payable, accounts receivable and consolidations – allows for quick tracking and transaction processing. The ERP accomplishes this by automatically pulling data from other areas of the system. It can create reports quickly in both detailed and summarized formats that multiple departments can use for better decision-making.
Enhanced finance information and accounting capabilities can help identify potential areas of lost revenue while improving the bottom line.
Inventory Management ERP Modules
As referenced above, poor inventory management is a major contributor to increased bottom line costs. If stock isn’t moving, a retailer cannot turn a profit.
Using a fully-integrated ERP inventory management system, businesses can communicate – warehouse to warehouse and department to department – and track trends in real time. Using key information provided in automatically-generated reports, management can control distribution functions and manage inventory more efficiently.
Moving inventory quickly boosts the bottom line. This is all made possible through the use of a retail-focused ERP solution.
While many ERP solutions offer a few of these solutions, unless the solution is modular and designed with specific, apparel and retail needs in mind, it could fall short.
Instead of working with an existing solution that causes frustration and fails to provide the full picture needed to increase the bottom line, you need to find the right ERP solution for your business’ needs – using the features listed above as guidelines – and to leverage it effectively.
How to Choose and Leverage the Right ERP for the Bottom Line
If your current solution is falling short or you’re looking for your first ERP solution, selecting the right system is critical.
To begin, gather upper management and those involved in decision-making for your company. Outline areas where your existing processes aren’t meeting expectations and compile a list of your needs. Where do you see room for improvement? Are you hoping to eliminate specific manual procedures? Do you experience setbacks due to inventory overstocks or understocks
Understanding existing frustrations will be crucial moving forward.
Next, start a search. Look for ERP solution providers that work in your industry. While “one-size-fits-all” solutions sound promising, they frequently require extensive customization, which can be costly. Instead, narrowing your options down to the solutions designed for your industry will leave you better equipped to work toward specific goals, like improving the bottom line.
Carefully review each potential provider. Do they offer extensive information relating to the solutions you’re interested in exploring? Do they target common problem areas you face on a regular basis? Are they designed to address specific areas of need? Can they integrate with your existing solutions if you plan to continue working with some programs?
Once you’ve narrowed down your list of potential solutions and providers, reach out. Share your goals and expectations in moving to a new ERP solution, and ask questions you may have up front. Be as transparent as possible to allow your potential ERP providers to provide the best possible solutions and plans of action. Consider this the “evaluation phase.”
During this phase, the following actions are critical:
- Including key decision makers in the process. If those who will help decide whether to move forward are not a part of the research process, it will be harder to move forward with confidence.
- Comparing more than just price. Pricing is important, and your potential providers should be able to share all fees and expenses you may incur, but other factors – like customer service – are important too.
- Exploring what processes will change, and how they’ll change after implementation. How will one solution help you as compared to another? If the end goal is a better bottom line, understanding how your new system will contribute to accomplishing this is important from the start.
- Taking part in live demos. Pay attention to the information that’s shared and ask questions. This is your time to get a feel for the solution that’s best for your business’s needs.
- Touching base after each presentation or meeting. Meet with your team after each solution is presented to discuss pros and cons of each solution on an individual level. Doing so could eliminate confusion and miscommunication before they become a problem.
- Checking references. Ask your potential ERP solutions providers for references of others in your industry who can speak about the system. Be sure to ask any questions you may have about the system, the implementation process and the available support.
Once you’ve carefully evaluated each system, with costs and expenses as a focus, you’ll be able to make a confident decision.
After making a selection, the following factors are critical for a successful implementation: setting an appropriate timeline, appointing an ERP system liaison and taking advantage of all training available.
To select the timeline for your implementation, learn how long the process should take and act accordingly. You do not want to go live during your busiest or most profitable time of year. All new systems and solutions require a learning curve. Planning for that curve will make the process as smooth as possible.
The process will be easiest if your company appoints a single internal team member to serve as the liaison during the implementation. Select an individual who understands the goals you have in place for your new ERP system, and who is comfortable in a project management role. Direct team members to send questions and concerns to this individual to pass onto your ERP solutions provider. This eliminates excess confusion and will allow for clear communication across the board. Clarity is important for everyone involved in an ERP implementation.
Next, provide as much training and time as is necessary to prepare all team members for the new system. You will only be able to leverage your new ERP system to its fullest extent – with a focus on boosting the bottom line – if each user is confident and comfortable moving forward. There will be questions and frustrations that come up during the process, but avoiding any rush and providing the proper training can help alleviate these and other common pain points.
After the training is complete and your system is live, you’ll start to see results. Remember, every new process that promises tangible benefits takes time. The same applies to growing the bottom line with an ERP. To properly leverage the system to accomplish this, be sure to utilize all the available features, and to ask your ERP system provider questions you may have that could prevent this. When concerns come up, it’s best to find answers, rather than to go back to a dated method from the past or a solution that isn’t as productive as it could be.
Improving the Bottom Line Using ERP
When you find the perfect ERP system, take advantage of all of its features and put the right team behind your new solution, you can increase revenue quickly.
If you’re looking for the ERP solution that’s right for your business, check out FDM4. Our modular ERP solutions are designed to increase operational efficiencies while improving the bottom line for those in the retail and apparel industries. Get started by contacting us today.