An effective supply chain is perhaps the most critical element contributing to the overall efficiency of a discrete manufacturing operation. It’s key to delivering on customers’ expectations and, in the end, to maintaining the increasingly important competitive advantage.
According to The Hackett Group’s 2017 U.S. Working Capital Survey, though, supply chain efficiency is a continual struggle. Inventory levels, in particular, remain high for many companies which serves to erode overall performance.
Despite efforts to make supply chains more efficient by streamlining supply chains, reducing inventory buffers, negotiating better terms and collecting payments faster, days inventory outstanding (DIO) — the average number of days a company holds inventory before selling it — currently translates to $412 billion of committed working capital. When you factor in days sales outstanding (DSO) $323 billion and days payables outstanding (DPO) at $279 billion, the 1,000 companies surveyed by The Hackett Group left more than $1 trillion dollars in working capital, or 9.8% of their total revenue, on the table.
Of these performance factors, DIO is often the toughest to change as it requires modifications to long-ingrained processes by multiple departments and groups. With the average DIO today at 53 days, though, finding a solution to bring that number down is imperative.
The most powerful method for reducing DIO — and making the entire supply chain more efficient in the process — is to gain visibility necessary for making decisions based on data, not on guesswork. That said, eliminating excess inventory and other sources of inefficiency will help free up working capital to use during times of growth, and reduce costs when needed to continue operations during downturns. It’s also the way to consistently meet customer expectations, something that’s becoming more challenging every day.
Where to Start
Are you spending as little cash as possible to get customers what they want, when they want it? If not, your supply chain is in need of optimization to reduce waste, speed the order-to-cash (OTC) process, and improve customer satisfaction. The best first step is implementing an Enterprise Resource Planning (ERP) system. This comprehensive business management software allows manufacturers to use data to achieve critical outcomes, including:
Accurate, Shared Information
Any decision maker in your organization needs ready access to real-time, accurate information at any step in the supply chain, from raw materials on hand to order shipment status. Without it, decisions are made based either on guesswork or on past experience, neither of which are reliable. An ERP solution provides not just data, but the insights that fuel proactive decision making and an organization-wide understanding of the facts.
Inventory Management Capabilities
Overstocking eats away at profits, while shortages lead to dissatisfied customers. Optimizing inventory quantities requires informed decisions based on complete information. An ERP solution allows you to track order status throughout the chain and make decisions based on that data reporting. This minimizes backorders, ensures accurate, consistent fulfillment and helps decrease the time needed to process orders.
Better Connections with Customers and Vendors
The more they know, the more confident customers and vendors will be in your ability to serve them. An ERP system can connect partners to specific areas within the system, making it possible for them to react more quickly when needed. If they have insight into your inventory, for example, they can anticipate surpluses or shortages and increase or decrease their order accordingly without delay or overcommitment of resources.
The best ERP systems also:
- Solve for regulatory compliance and customer demands
- Give your customer service team visibility into inventory availability, order status, and shipping so they can better address customer issues
- Make it possible for the organization to react more quickly to changing conditions and supply chain interruptions
An ERP system breaks down barriers that stand between business units because of outdated systems and siloed activities. By providing a global, real-time view of data, users are able to leverage the insights to proactively drive improvements in a number of performance metrics. Many tasks are automated through an ERP solution, eliminating redundancies, and helping speed the OTC and other processes so vital to cash flow and profitability.
So, ask yourself: Are you getting customers what they want, when they want it—and spending as little cash as possible to do so? If not, it’s probably time to discuss your options with experts in ERP consulting and implementation for manufacturers, and that’s Wipfli. Reach out to talk with one of our manufacturing team members today.