Monday, January 27, 2014

The Best Advice for a Start-up? When to Implement Inventory Optimization Tools and What to Use

I am currently working at a start-up created by a CMU alumnus and we are looking at all sorts of new programs, software, and tools to use to more effectively do our work. It’s surprising how little can be gleaned from the information given to you by companies about their products. Conversely, competitors or others in the marketplace aren’t exactly chomping at the bit to share their implementation secrets with you. It’s a tough path to tread, and most of the time you won’t find a definite answer. You’ll have to piece together a story, and then go with your gut.
Looking into the topic of Inventory Management, I’ve come across several different articles on the top strategies to improve inventory management. Each of these articles seems to indicate that the top priority is to implement optimization tools and programs. “The days of managing inventory using Excel spreadsheets are passé”, one expert commented. But when you are starting a business, there are many variables to think about, and your resources can only be dedicated to so many tasks. What tools should you buy? At what point do you buy them?

Let’s start by defining the options. There are two main types of Inventory Optimization Tools out there for companies: Warehouse Management Systems (WMS) and Enterprise Resource Planning (ERP). Warehouse Management Systems are for the hardcore warehouses. These systems track bar codes and catalog your inventory, but they also give you advice about how to layout your warehouse and where to place your inventory to maximize efficiency. These systems start at about a hundred thousand dollars. More than likely this is too much information (and cost) for the start-up company. ERP’s have some added functionality, but lose the layout planning ability. These systems enter invoices, track accounting, manage your contacts, and can even purchase orders.  These systems also synchronize throughout departments in your organization, whereas WMS systems are stand-alone. They range in the tens of thousands of dollars, depending on the company.

Dashboard from GenPact WMS Optimization Tool

Yet we’re still left with the big question: when do you implement an optimization tool in the first place? When do you throw down the cash? I have two main criterions to guide you. Criteria number one: If you can’t dedicate a significant amount of time pouring over the records to check for mistakes and synchronize information manually, then you should implement a system. Until then, a good wireless signal, some tablets, and a Google Docs spreadsheet may just do the trick. Criteria number two: if your profit margins are thin, and you need bulk orders to be profitable, go with at least the ERP systems from the get-go.

Personally, I’m still left feeling there are more cost-effective solutions out there. Does anyone know other options available to start-ups? Will free-to-use technology ever overtake the Optimization Tool industry?


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