posibolt purchase working capital optimization

Solution to Working Capital Optimization while avoiding Stock Out

The purchase activity in retail setup throws up the dual challenge wherein the owners face the dilemma of having an optimum/ timely inventory and of saving on unnecessary spend, and managing space and wastages. Maintaining the freshness and relevance of the products is another added troublesome dimension to it. The question therefore is can we have enough suitable, relevant stock while we don’t run out of working capital? This document tries to address this question with practical implementable solutions.

The following are the practical steps towards optimizing your purchase process

Understand the Customer Demand

It is common knowledge that businesses that are deficient in understanding the needs and demands of the customer cease to exist or may stagnate and have its eventual peril. On the other hand, those who have the customer focus by way of knowing their needs, understand their buying patterns, know the wallet factor, and cater to the variety in size and scale are the ones that thrive.

Customer demand forecasting is the process of estimating and predicting customer demand of products or services by using informal methods such as educated guesses, and quantitative methods, such as the use of historical sales data and takes into account external factors like market trends, seasonal demands, yearly growth rate, economic conditions, upcoming promotions among others. For a system-based demand forecasting also called as perpetual inventory system, you need to have clean, well classified master data along with sizable historical sales transaction data.

Based on the Safe Stock principle, setting Reorder Level and Order Quantity that gets reflected in the automated replenishment requests which are fed to the purchase process.

Vendor Product Pricing Strategy

While the retail business thrives on the specific understanding of what the customer is looking for, it would be unwise to blindly go ahead with procurement without comparing the vendor pricing, freight/ transportation charges also called landed cost based on volume, weight, value as appropriate so that the costing is accurate.

Streamline your Supply Chain

Streamlining of Supply Chain starts with the Vendor Onboarding and goes on to associating the products with vendors, raising of purchase orders with the right terms and conditions, tracking of shipments, scheduling the consignment unloading, receiving the goods and eventually distributing items to stores based on pre-defined distribution lists.

Automating the Purchase Process

Based on the replenishment requests generate the draft purchase orders based on the preferred/ supplied vendor history and performance. The draft purchase orders go through an approval mechanism based on the defined approval chain, which should be customized based on the value and type of item. The algorithm also needs to consider the lead time, opening hours and holidays to avoid outages at the wrong hour. One needs to include the goods in transit as well applying the replenishment purchase function. Having a comprehensive purchase management software that addresses the above areas is imminent. Machine Learning is being applied to study the heuristics of the past performance and suggest predictions. Posibolt is a leading provider of Retail ERP, Inventory and Point of Sale (POS) solutions across retail formats and variety of Distribution Centers whose customers are spread in 10 countries across Africa, Europe, Middle East and Asia. For more details visit www.posibolt.com or send in your queries to info@posibolt.com

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