As artisan and local food products become increasingly in vogue, a large number of small to medium-sized businesses (SMBs) are moving out of the local catering space and taking on industry giants. Having a comprehensive inventory management system in place is crucial if such a challenge is to be successful. Spreadsheets and even accounting software simply do not offer the best tools to manage inventory in a busy food manufacturing business geared towards reducing waste.
Previously, food sector SMBs were at a disadvantage as Enterprise Resource Planning applications were not a viable option. Smaller scale manufacturers can now benefit from inventory management software that is designed specifically for SMBs. Let’s look at some of the main efficiencies that inventory management software can unlock.
Because their primary focus is to create and promote a quality product, smaller manufacturers can sometimes let the financial detail slip away. Failing to consider overheads and hidden costs such as plant, storage and office expenses can compromise the bottom line. So too can continuing production of large batches of an unprofitable product, effectively subsidized by some of the business’ better selling items – although sometimes this is a deliberate move, perhaps to gain market share. However, for a food manufacturer in this position, it is crucial to have a sense of every dollar that goes into making the end products. A comprehensive inventory management software package can provide this financial visibility, in particular, highlighting cost and revenue pressures and areas of financial inefficiency.
Committing large amounts of money to substantial reserves of safety stock is a poor way to use capital that could otherwise be working elsewhere in the business. Moreover, it compels your business to spend time and money procuring, shipping, handling and storing the extra inventory. Many manufacturers are wary of running out of materials and having to halt production, a costly move that can also sour relationships with distributors and retailers. Of course, carrying a lot of safety stock is not a necessary evil. By taking a lean production approach, the level of safety stock required can be significantly reduced. A best in class inventory management system will allow you to fully understand the dynamics of your material inputs. For example, how much stock do you have right now, what are the trends and how long will it take to order more. Having this information at hand means that you can make pre-emptive orders and reduce the need for safety stock.
Reduce Back-Office Inefficiency
If your business still tracks inventory using spreadsheets or accounting software, the reliance on manual processes is slowing business growth. Inventory management software reduces paperwork, minimizing labor costs. Generating reports is a quick and straightforward process. Time-consuming ordering can be partially automated, while many labor-intensive procedures can be replaced or accelerated by making use of barcodes and RFID tagging.
Many food businesses have a strong handle on waste – they know that, left unchecked, waste can add up to a major cost over time. If you already understand and manage food and ingredients waste, inventory management software can help you do it faster and more easily. On the other hand, if you suspect that you may be spending money on inputs, only for those inputs to never be used, inventory management software will help you identify and address the problem.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.