You Don't Have To Be A Big Corporation

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Inventory Management is amongst the top reasons why South African businesses acquire ERP software. The challenge for businesses is to be able to trust both the stock quantities and the costing that they base their decision making on. Incorrect reporting of either the quantities and costing of inventory has obvious detrimental effects to operational viability. When business start out, the challenge of sound inventory management is not apparent. We find often that most small businesses’ start by utilising spreadsheets for the management of stock quantity and costs. This works out fine for some time depending on the transactional volume but eventually becomes unmanageable. By the time businesses are looking out for solutions, they are already hurting and losing cash because of stock unaccountability. Whilst it’s understood that the main reason for deferring the acquisition of ERP software has largely been cost, with the rise of FREE open source cloud ERP software such as ERPNext, SMEs can now take advantage of features that once were available exclusively to proprietary enterprise ERP software. In our review, we will cover just the highlights of inventory management found in ERPNext and provide some handy tips on how to get the best from the features available.

Supply chain management

ERPNext has three costing methods which cover most requirements of small businesses:

There is plenty of material that explains how each costing method works and so we will not go over the detail of that in this article.

What we find in general is that businesses opt for moving average costing for externally sourced stock that they have no influence on supplier pricing. Standard costing on the other hand mostly applies for internally produced/manufactured items for which the business determines the final price. Where we see SMEs struggle is the management of imports. The challenge has been the factoring in of landed costs to the cost of the inventory items.

The different kinds of landed costs include but are not limited to:

When landed costs are improperly accounted for, businesses can quickly become unprofitable even though they enjoy high sales. This arises because most business tend to apply mark-ups on cost prices, and when cost prices are incorrect, then the selling price is also not right. The problem of landed costs can easily be addressed with free accounting software but it gives many businesses countless sleepless nights as they try to manually apply different these factors to cost prices, just to get to the right selling price. We've seen some businesses resorting to guess-timates which unfortunately sometimes result in the businesses pricing themselves out of the market because of a logical preference to err on the side caution.

Careful management of landed costs can be a business’s secret weapon for successful supply chain management. Landed costs provide a competitive advantage over the less savvy competition that still follows the traditional approach to landed cost management. Through detailed analysis of the various landed costs, business can gain better understanding of what's working and what's not working. By asking the right questions such as:

These questions may result in answers that shed better light to the operations of a business. The answers may result in internal behavioural change. The businesses could perhaps decide to utilize alternative, price competitive suppliers. These suppliers may have longer delivery times which the business could manage around. The cost savings if passed on to the end consumer can give a business a price advantage without sacrificing quality which cash strapped price sensitive consumers always welcome.