As consumers, we are driven to challenge and negotiate the price of everything we buy. This can be a good thing as you can realize additional savings in many cases. When it comes to purchasing items for a business though, how do you properly gauge the value of the inventory you are buying?
First, there are some distinctions of business purchases, strategic and non-strategic. Non-strategic are those for everyday items like office supplies, travel, commodity items, etc. Strategic purchases are those that have a direct effect on the business and the bottom line. For manufacturing companies that can be raw materials, production equipment, energy, skilled labor, computers, and business operating software.
For wholesale distributors, strategic purchase examples are for buildings, equipment, computers and business operating software. Brick and mortar retailers need to acquire space in the right location, stock the stores with the correct amount of inventory, advertisements, computers and business operating software. E-Commerce retailers on the other hand don’t need to worry as much about storage as they usually sub-contract out to 3rd parties, but they do need computers, web advertising, and business operating software.
You will notice that the common threads in these industry segments are inventory, computers and business operating software. These are strategic purchases because they impact the flow of materials for production, provide the inventory needed to sell and ship to customers, help keep track of receivables, payroll and payables and help plan what, how much and when to order the inventory. In other words, the cash and profits to run a business are directly dependent on these items along with skilled labor. Business operating software not only includes an ERP or accounting solution but also demand planning that includes forecasting, replenishment planning and optimization.
The situation that a buyer faces is how to properly gauge the value these strategic purchases deliver to their company. If you pay too much, then you might not realize a good and timely return on investment (ROI). If you go cheap and drive a hard bargain for the lowest possible price, you may be in jeopardy of not achieving your sales, service and profit goals. The old adage “that you get what you pay for” is very true for strategic purchases. It might seem like a good deal initially but later you realize you have to pay for additional modules and or services. Not only does it end up costing more in money, consider the cost of the time you lost.
Inventory planning and optimization software is a strategic purchase that warrants close scrutiny in selecting a solution that meets the majority of your planning needs. Notice I said most of your needs, the reason is that many times not all the needs are required initially (you need to walk before you run), or they may be more of a nice to have type requirement.
The evaluation of the inventory planning software should take into consideration both tangible and intangible factors. Tangible factors will include: product features currently available and on the roadmap; published customer success stories (case studies); length of time in business; references and more. Intangibles can include: experience of the team as both inventory and product planners and managers; innovations in the product and technology and deployment, friendliness of the sales and support staff; perceived ability to work together to achieve goals. Collaboration with your inventory planning solution provider is a very key element that should not be taken lightly. Their experience and knowledge can dramatically improve your own planning and service success.
Setting the value of the purchase of an inventory planning solution should include all of the above when considering the price you pay. In general, advanced inventory planning and optimization solutions like those offered by Valogix will provide you with a significant return on investment for a long time.
Customer results of using advanced inventory planning & optimization show they achieve:
Reduced inventory by 20% to 40% or more usually within 6 months or less
Reduced expediting and emergency shipments by 35% or more
Improved productivity by reducing planning time by 60% to 80% or more
Controlled and reduced replenishment spending by 15% or more
Improved service levels by having the right items available when your customers want them by 5% to 15% or greater
Reduced stock-outs by 15% - 30% or higherIncreased sales of 15% to 15% or moreReduction in cost of goods by 5% to 10% due to improved vendor relations
More satisfied customers and employees
The bottom line, the price you pay is an important factor. However, measure it carefully against the value you can except to receive both in the short term and in the long term. Get our free ROI Calculator and see for yourself!