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Sophisticated inventory systems are not just for multi-billion dollar companies anymore. With recent advancements in business management software and global e-commerce, SMEs now have many of the same inventory processes and technology as larger firms.

Herein lies your broader world of possibilities, which are fraught with new challenges. On one hand, if your company can sense and respond to lucrative inventory-driven opportunities in the marketplace, you can now expand in practically limitless ways. On the other hand, be careful. Assume that if your company can do this, so can your global competitors.

Regardless of whether your most promising business opportunities are hyper-local or multinational, there’s no better way to prepare than to streamline your inventory management system. Through this process, you not only improve your ability to compete, but you can also stimulate new sales growth and free up cash flow.

To help you build new competitive advantages for 2012 and beyond, we’ve put together a list of the top five ways you can get the most leverage out of your inventory and be better prepared for the economic volatility that has become the norm.

1. Whip your data into shape

   For most manufacturing companies, the largest asset on the balance sheet is inventory. And while executives often say that they know they are hurting their cash flow by carrying too much inventory, they also do not know how to reduce it without creating painful out-of-stock situations.

   According to Dr. Hau Lee, the father of modern supply chain management, every inventory-driven company is at risk of the “Bullwhip Effect.” This concept describes how seemingly small inconsistencies of inventory information become increasingly exaggerated and distorted as they move up the chain from manufacturer to customer, which drives up costs and hurts efficiency.

   The antidote to the Bullwhip Effect is having more accurate information and greater visibility across the entire demand chain—from headquarters to warehouse to partner to store. This begins with an assessment of the current data in your system.

   Is there duplicate data in your system? Where is it coming from? Does your inventory management system have the ability to cleanse and reconcile it? If not, it’s essential that you figure out why, and make a company-wide effort to create a single version of the truth. Without it, your inventory goals will be much harder to achieve.

2. Put your inventory on a diet

   There is a lot of talk about the virtues of lean inventory management and what the optimal number of days of supply is for a company in a given industry. Less is more, right? Perhaps, but there is significant danger in going too lean with inventory, such as when you don’t have enough of it to deal with a new opportunity or spikes in demand.

   So how do you manage this delicate balance? Only when you have clean inventory data and sound reporting methods on all of the drivers in your inventory chain can you accurately determine how lean your inventory can be. And just as essential, you must have sound technologies and business processes to be able to maintain leaner inventory over time without causing stock-outs and reporting problems.

   Oversea Casing Company, LLC is a food products supplier that sells thousands of types of natural sausage casings to worldwide customers. Recently, the company struggled with inefficient inventory processes that created headaches for internal management.

   “We needed to track the finished product back to the raw material source,” says Tina Moore, a controller at Oversea Casing. “Implementing SAP® Business One allowed us to do that. We can go to a master data file for a business partner and drill down to the invoice, the delivery note, the lot information, the receiving date, and where the lot came from. This is done through simple point-and-click navigation. The other software programs we evaluated could handle accounting, but not inventory lot tracking.”

   Since implementing the SAP Business One application, Oversea Casing has improved its inventory system and achieved USDA-compliant lot tracking. It also automated its daily reporting to provide executives with real-time insight into transactions, margins, costs, sales, and budgets.

3. Extend data to partners, and expect the same in return

   Given all the innovations created by globalization and new technology over the past decade, it’s wise to reevaluate your strategic partners on a regular basis to ensure that they are creating and not slowing your new market opportunities. The better partners are those who are able to communicate effectively with you and have modern IT systems so that you can gain visibility into their inventories.

   At the same time, the best partners will expect the same inventory visibility and market information from you. It’s the new normal. While this might sound challenging, the good news is that centralized business management software platforms can lead the way. The best ones are built with industry-standard data structures and application program interfaces (APIs) so that it’s easier than ever to extend select dimensions of data to business partners for mutual benefit.

4. Give customers real-time visibility into your inventory

   The ability to extend real-time product and ordering information to customers is a significant competitive advantage. Not only will customers be more satisfied when they know instantly if their order can be filled, it also increases sales velocity while reducing operational and inventory carrying costs as well.

   Recently, Staub Electronics, a wholesale distribution partner for home theater and mobile electronic equipment to Canada’s major electronics retailers, sought to provide better service to its customers through e-commerce and warehouse automation.

   “We desperately needed to manage inventories better,” says Scott Trotter, Staub’s Vice President of Sales and Operations. “We started looking for a third-party warehouse management package we could connect to our legacy software.”

   Working with SAP channel partner Coastal Range Systems, Staub selected the SAP Business One application for implementation. It enabled Staub to automate many manual operations, thereby improving customer service while saving labor. The company was able to implement e-commerce and true warehouse management for the first time. The new business-to-business e-commerce site reduced manual order entry by 15 percent and reduced cross-dock order processing time from 15 hours to two to three hours per week.

5. Manage your services like physical inventory

   In addition to the new SME technology available to streamline the inventory of physical goods, many leading companies are now applying the same processes and practices to their services division. By doing so, businesses are creating new competitive advantages while reigning in operational costs.

   One SAP customer, a global personnel consulting firm, sought expansion beyond its 30 global offices. Because human resources was its most important inventory, company executives needed to provide more than 100 employees with self-service access to the company’s real-time allocation of its global staff.

   So the company chose CREW, a qualified SAP® Business All-in-One partner solution from SAP partner et alia, LLC. The new system enabled PDI staff to efficiently respond to client requests and manage processes between team members and offices.

Making Your Move to Streamline Inventory

While every business and industry is unique, they all have one thing in common: The company’s ability to grow requires that business systems and processes are aligned to the staff and, better yet, one step ahead.

SAP’s business management solutions are built on 35 years of experience streamlining business processes for global companies in every industry. Here is a brief summary of the comprehensive, integrated solutions we provide:

• For mid-size companies, SAP Business All-in-One solutions are world-class enterprise resource planning (ERP) applications with state-of-the-art technology that can easily adapt to changing business needs. SAP Business All-in-One has fully integrated functionality to help customers manage everything from financials, human resources, procurement, inventory, manufacturing, logistics, product development, and corporate services, to customer service, sales, and marketing.
• SAP Business One™ is a single, affordable application that includes all the processes you need to handle key operational activities—from managing sales and customer relationships to operations and financials. Built for small businesses, it can be installed quickly and is straightforward to maintain and use.
• SAP BusinessObjects™ Edge solutions help companies to ensure the integrity of information by accessing all your data, validating the accuracy, and maintaining consistency across sources. With this solution, you can transform decision making by delivering trusted information to people when and where they need it.
• Delivered on demand, SAP Business ByDesign™ is designed for companies that have outgrown their IT systems and want to consolidate multiple business functions within a single, fully integrated business suite.

In case you missed it, our first SME newsletter story provides a questionnaire to help you better assess eight different dimensions of your inventory management system and processes. It’s a great way to get a head start on identifying the areas that need the most attention. And it will help you prepare for internal strategy sessions and for those with the SAP partner network. Over the course of the past decade, we’ve delivered tens of thousands of inventory management solutions for SMEs and would appreciate the opportunity to share our knowledge with you.