Empower Business Solutions

Erratic Vendors and Their Investment Cost on Inventory and Warehouse Management

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Inventory is almost certainly your organization’s most sizable investment.  Minimizing the amount of capital you have tied into your warehouse’s holdings is paramount in order to optimize operational cash flow.  Vendor lead times, which are the anticipated time period between ordering product and receiving it, are directly and unmistakably tied to this endeavor.

So what affect does an inconsistent vendor have on your capital investment?  Consider the following scenario.  If your organization sells 5 items per day, and your anticipated vendor lead time is 10 days, you would need no fewer than 50 items in your warehouse.  And, when your inventory approaches 50, you would need to reorder.  If you pay $1.00 for each item, your investment at any given time for this product is approximately $50.00.

Unfortunately, an erratic vendor can cause a significant investment cost increase because inventory projections must be made using the longest anticipated lead times.  For example, if every now and then, said vendor takes 20 days to deliver the items, your company must double its inventory to 100, tying up 100% more cash in warehouse holdings.  It is important to have a solid inventory management software that can report these findings for you.

The result of the increased investment cost is neither profit nor product enhancement; your organization has simply increased capital allotted to inventory.  The decreased accessible funds will impact your organization in innumerable ways.

Microsoft Dynamics software solutions, as employed by Empower Business Solutions, can enhance all lines of your business, including Inventory and Warehouse Management.

Joe Hasson, a Pennsylvania Microsoft Partner serving the distribution industry

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