How to scale your small business

A common misconception in the business community is that the “start-up” phase is typically the riskiest stage, when in actuality small businesses are at most risk of failing in their growth phase. With growth comes an increase in critical mass, significant capital investment and an increase in overhead costs. A business operating with more staff, more locations and more revenue shows growth on paper. However the truth lies in the Profit & Loss, this same example could well be making the same or less profit as before they grew with increased administrative burden. The most important thing to know when growing a business is the difference between growth and scaling; growth is an overall increase in critical mass, however scaling is an increase in sales while decreasing costs.

As a business owner, your job is to make calculated decisions while mitigating risk. The difficult reality for business owners is that even the most meticulously managed scaling costs money and capacity. When planning to scale up a business, the key is to assess the cost versus benefit of every decision to ensure that the returns on successful scaling are higher than the potential risks.

When scaling a product based business, close attention must be paid to cash-flow and the cash burn rate. Not every small business can afford a clever CFO to manage this perpetual machine, however negotiating better payment terms with your suppliers will help you increase your stock-turnover rate. If you can effectively forecast that you are going to sell around 25 widgets next month, and you negotiate for 30 day payment terms instead of prepaid, you will tie up no capital in that stock but still collect all of the profits.

Another tip for scaling a product based business is to introduce a wholesale channel to your operation. There are an array of risks involved with establishing a wholesale channel, thankfully with the right processes and technology you can get this up and running with minimal cost or disruption. Businesses who implement wholesale the right way will quickly see turnover and profits soar, and small businesses will commonly seek wholesale as a viable method of scaling. On the flip side, the implementation of an e-Commerce sales channel can also broaden your number of potential customers.

The common theme when discussing options for scaling with minimal risk is technology. The implementation of a cloud solution is the natural progression from manual record keeping like spreadsheets, and when configured correctly will provide you with the insights to scale your business; without the cost of installing an incumbent ERP system. ALTSHIFT has provided a platform for many small businesses to scale upon, and our expertise across many different industries and verticals will ensure we see you through your growth phase. Need a hand? Talk to the experts.


Effective demand forecasting models

Demand forecasting is the complicated science of hypothesising expected sales demand for a given product or series of products. Typically demand forecasting consists of assessing future demand based from historical sales data, and is used to aide businesses in making decisions on what inventory should be held to make best use of cash. The absence of demand based forecasting leaves businesses vulnerable to lost opportunities through stock-outs, or could leave your business with a surplus of stock.

Pursuing demand forecasting to maintain a lean inventory has a number of benefits, one being increased sell-through. Sell-through is the number of times inventory is bought and entirely sold in a given time period, the goal here should be to purchase and entirely sell the inventory of a given product within 90 days. Achieving this will result in reduced holding costs and increased cash-flow. Being able to effectively anticipate customer demand will also allow you to make smarter staffing decisions around providing resource to facilitate spikes.

One method of demand forecasting is a time series analysis, this method is best suit for businesses that have several years of sales data to work from. When trends are clear, businesses will use their historical sales data to get an idea of the seasonal fluctuations of sales volume. This method will work best where sales trends are relatively stable.

In the absence of historical sales data, a method called qualitative forecasting can be used instead of the time series analysis. The qualitative forecasting methodology is typically used with new businesses, or where a new product line is being launched. This method will typically use market research to make a hypothesis on forecasted demand.

A factor to consider when demand forecasting is seasonality. Seasonality is a characteristic where sales experience regular cyclical changes that recur over the calendar year (such as an increase in sales during the holiday season). Trends can also occur over time that signal a shift in behaviour such as a product increasing in popularity. When it comes to demand forecasting both seasonality and sales trends should be taken into account when hypothesising the demand of a particular product. This data should then be used to prepare your inventory, marketing activities and overall operational processes. By effectively forecasting anticipated sales of a particular product, you’ll be able to increase your sell-through rate and reduce stock-out scenarios leading to increased customer satisfaction.

Your business ERP system will be the starting place demand forecasting, as this is where most of your data lives. Having worked with wholesale/distribution businesses of all shapes and sizes, ALTSHIFT has successfully executed ERP projects that serve as the backbone to effective demand forecasting. Planning to implement a new ERP system? Get in touch for a free consultation.


Improving warehouse efficiency

As more and more businesses move into omni-channel distribution, the efficiency of ones inventory operation becomes relevant. But one may ask, when is a warehouse considered to be at capacity? The answer to this may vary, but typically a warehouse is at peak efficiency where space utilisation is at 80 - 85%. Breaching this threshold will see diminishing efficiency from a movement and space perspective. Pallet movement is restricted making each replenishment take more steps to complete, temporary storage of pallets on the floor will also inhibit efficiency. More steps to complete a move results in increased costs and slower processing, a business in this position will also have to expand to more locations quicker.

One of the first things to look at when assessing warehouse efficiency is by looking at each product on the shelves. In order to understand your specific situation, you need to assess the sell-through rate of each SKU sitting in inventory. This is the rate at which you sell through your entire inventory of a given SKU within a defined time period. Using this information, make an assessment on which products you may be overstocked on. With this in mind, here are some tips to make most efficient use of your warehouse.

Quantify the storage profile of your warehouse in terms of capacity and utilisation, look up and ensure you’re making best use of your vertical space. How many cubic meters of overhead space are not used? When discussing vertical space, make sure any changes you plan to make do not conflict with the fire safety installation of the building. While you’re on the subject of vertical space, identify functions where stacking heights are lower. It isn’t uncommon to observe empty upper rack space in areas of a warehouse where packing and dispatch take place. Another aspect of shelving that is often overlooked is depth, switch to double-depth racking to further increase efficiency.

If you are holding the same SKU across different bins or locations, try to consolidate these to increase space utilisation. Matching the size and sales of your different SKUs to an appropriate sized pick slot will also maximise the efficiency of your picking slots. If you find you’re overstocked on a couple of products, consider storing this inventory off-site to free up rack space for products with a high sell-through rate. Where possible, introducing drop-shipping for these products will further decrease your in-house inventory costs.

Another factor to consider is the width of your aisles, you don’t want these to be too wide as this will lower your overall space utilisation. By the same token you don’t want your aisles to be too narrow to the point where they inhibit picking equipment from operating effectively. Try to keep your inventory of packing materials relatively lean to retain space for other products. A good way to do this is by taking with your packaging supplier, aim to have them hold some inventory for you and simply take delivery every few days.

Managing the efficiency of your warehouse is made far simpler with specialist warehouse management software. At ALTSHIFT, we have worked with businesses of all shapes and sizes to introduce solutions to improve operations. Thinking of overhauling your inventory operation? Get in touch with us.


Maintaining lean inventory for distributors

In today’s economic climate, businesses are on a constant rolling diet. Owners and inventory controllers strive to pilot the leanest possible operation with next to no liabilities. Particularly in the Distribution scene, these companies are being run on extremely lean inventories - thus reducing the amount of capital tied up in inventory. Other companies will stock up in order to always have what the customer ordered.

There are pros and cons to both of these strategies, when a company chooses not to stock up they run the risk of losing an opportunity once a customer comes calling. By the same token, the distributor who stocks up on an item finds themselves in strife once they realise they’re not able to move the product quickly. The vital metric to any distribution business is sell-through rate. This metric is the number of times inventory of a product is bought and entirely sold in a given period. The more times a distributor can turn over it’s inventory in a year, the more money they will make. You can maximise your stock turns by avoiding stocking items that you cannot turn within 90 days.

The amount of inventory that you initially purchase is going to depend on where your customers are located and the quantity that they can reasonably demand. If your customers are in close proximity to your warehouse, then you can simply ask them how much product they plan to procure over a given period. On the other side of the coin, if your warehouse is servicing a far larger area of customers then you’ll need to have a buffer for any unexpected spikes in demand. Having good relationships with local suppliers comes in handy here as they can help you fill this demand within a reasonable timeframe.

One of the biggest errors a company can make is investing in too much inventory. If you aren’t able to move this product quickly, the inventory will be taking capital and shelf space inevitably costing the business cash-flow. The space taken by the slow-turning inventory could be better used stocking product that plays to what your customers want to buy. This comes back to the sell-through metric mentioned earlier, this metric is key to the success of any distribution business. The trick underneath it all is to hold just enough product to not run out of stock. Achieving this balance is key to your success as a distribution business.

Another factor to consider when deciding how much stock to purchase is the product life-cycle. Products like food and beverages are high-risk items which have a finite shelf-life, whereas gardening tools are relatively low-risk and can be kept on hand. Another trick of the trade is to sell your stock before you’ve even paid for it leveraging payment terms. If you only have to pay for the stock 30 days after it is sent, you could sell the stock and have the cash in hand before you settle the bill with the manufacturer. This way you’re essentially acting as a middle-layer, never “owning” the stock, but clipping the ticket along the way.

When it comes to managing lean inventory, this task is impossible to do at scale without a high level of visibility into your purchasing, sales and inventory operations. The implementation of a specialised ERP platform will give you the power to monitor your sell-through rates and other metrics to enable you to make smarter purchasing decisions. If your current system isn’t quite up to scratch, Alt Shift can manage your ERP project from scoping to implementation and training. We can provide you the tools you need to take your business to the next level. Get in touch with us to book in a chat.


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