With restrictions on travel, social distancing and mandatory quarantines, the current estimates are for double digit decline in GDP in Q2 2020. After surviving Y2k, the dot com bomb, and the financial crisis we have learned many lessons about how to survive a recession. Since doing nothing is not an option and tightening the belt will only help so much, consider some of the following tips to prepare for and emerge stronger if there truly is an impending recession.
- Find Ways to Increase Value to Your Customer – When customers are tightening their belt, they are more likely to spend less. You would like them to spend the same or more, so you have to provide something to entice them to continue spending. This could be bundling products or adding a service such as delivery, carry away, or some level of installation. Value is always in the eye of the customer, and sometimes just simply asking them what would be of benefit to them during these hard times gets you the information you need to serve them and the competition’s customers as well.
- Optimize Your Core Processes – For most distributors, procurement, warehouse management and order fulfillment are the key to success. Although most distributors pride themselves on these processes, new technology can often quickly generate positive ROI:
- Sales forecasting and regression analysis combined with materials requirement planning (MRP) can better match procurement to requirements to lower inventory while maintaining the fill rates. Statistical techniques can set levels to a fill rate percentage of 90-95% or higher.
- If you don’t have bar code scanning today, this simple and reasonably costed technology can increase accuracy and pick pack and put away efficiency. If you have basic bar code scanning, more advanced tools like directed put away, voice directed picking or license plating may be able to further increase efficiency.
- Sometimes reviewing the organization of goods within your warehouse can reduce picking time. See our whitepaper on Improving and Optimizing Inventory Management with SAP Business One for more tips and tricks.
- Find Ways to Cutout Bad Costs – Not all cost is bad. If your unique value proposition is customer service or quality installation services, reducing costs in that area will only make you more like the competitors you want to differentiate from. A bad cost is one which adds no value to the customer. For example, one of our customers prided themselves on having a very broad and deep catalog of products to the point where they had over 300,000 SKU’s in their inventory master file. Not all were stocked but as many as 50,000 were, many of which were obsolete. However, a relatively small percentage provided 80% of their sales. By cutting the master file to the 50,000 and stocking less than 10,000 they were able to pull tremendous amounts of cash out of their inventory. Most companies who had this type of excess have already leaned out, but the concept is likely still valid, and the use of inventory optimization tools can typically reduce inventory carrying costs by 5-20% with payback in under 90 days in many cases when implemented properly.
- Focus Marketing on Areas of Opportunity – When the economy hits a downturn, the likelihood is our customers will purchase less or potentially stop buying at all. We will have to work harder, market more and spend more time selling to achieve the same revenue. Often, we turn up the volume and cast a wide net, increasing our costs. In many industries our targets are well defined, and their preferences are known. People who drink Coke will likely not switch to Pepsi in a recession, but people who have no preference might buy either product. In a recession you need to focus on those customers or prospective customers who are not loyal to your competition to preserve funds for areas of opportunity.
- Enable Remote Working – In our current circumstances, and as an ongoing opportunity, a flexible work environment can save money on space, reduce travel time, and actually increase efficiency when done correctly. Today we are all in the cloud in some form or fashion and cloud applications, hosted desktops, and mapped cloud drives can make working from anywhere technically easy. It also takes training for staff and managers to achieve the efficiency part. See our recent blog post 6 Tips for Working From Home for more ideas.
- Enable Remote Customer Access – It is not only your employees who are working from home, but your customers as well. Now and in the future making it easier for customers to work with you will make you a preferred vendor. If you don’t already have an eCommerce site, consider building one. There are a plethora of great, easy to use eCommerce platforms which can pay for themselves quickly. Remember, just because you built it they will not come; you will have to market the site. If you have an established site, and you are generating 20 or more orders per day, integrating with your business management software eliminates duplicate data entry and related errors. Our 2SimpliConnect platform has templates for integrating Shopify, Magento and other eCommerce platforms SAP Business One. Depending upon your needs and current capabilities, you may want an integrated platform built for your business management solution such as Focused Impressions for SAP Business One.
- Invest Wisely with Other People’s Money – Interest rates are at historically low levels. If you can make investments that provide a high probability to produce a return on investment within the loan time frame, take advantage of great financing opportunities and preserve your cash on hand. We often work with customers which have outgrown QuickBooks and use SAP to automate business processes to enable growth. These same techniques can be used to cut costs. Now with near 0% financing for customers with good credit and subscription pricing, the cost of upgrading and automating has never been lower or smarter. If you think you could benefit from a modern Enterprise Resource Planning (ERP) download our 6 Point Analyzer to determine if you could benefit from a change.
The time to prepare for a recession is now! Remember that you can’t grow your business by simply cutting costs and in a recession, you must focus on top and bottom lines. Smart marketing, customer focused promotion, turning slow moving or obsolete inventory to cash and increasing efficiency of operations create a complete strategy for success during a down economy.
To find out more about how upgrading to SAP Business One with SAPDistribution.com and the distribution best practices built into our packages, contact one of our distribution experts at 678-401-6244 or fill out a Contact Us form.