Smart Shopper's Guide in choosing an Inventory System

Sorry for not being able to create a blog post for a while. It is that time of the year when my social calendar really tries to compete with other responsibilities. I trust that all of you guys had a good break and get to spend some time with your loved ones. Happy Mother’s Day also to all your moms and mine! 🙂

The previous blog entries we did are for fun. Its for us to create some features on topics that are light and interesting to us. Now we feel its time to get back to business and to give you guys a more in depth look into what we do for our customers as a company. We will use the next couple of featured blogs to relate to this topic and help you guys have an informed choice for the decisions you have to make for your IT needs.

We will first focus on Inventory Systems where we found there was more demand from our customers here in the Philippines. Should you have any questions and concerns on other systems that we haven’t featured here yet, feel free to contact us at hello@creatinginfo.com for more information.

Inventory Systems

I am a fan of the celebrity family Team Kramer. For those of you guys who don’t know them – dad’s a PBA star, mom’s an actress and everyone knows their 3 kids through social media. They have about 1 Million online followers and about a month ago their eldest Kendra Superstar had her first commercial featuring Nesfruta Dalandan. When my sister tried to hit the supermarkets a week after the commercial debuted, all Nesfruta Dalandan was out of stock. I guess you will know that the commercial was a hit because ALL other flavors of Nesfruta like Pineapple and Mango are still there, only Dalandan was sold out.

To me, what Nesfruta encountered was a cross-functional problem in their organization where they invested in Marketing and Advertising but eventually failed in Operations Management. In a way, it’s a waste because the commercial had successfully brought the customers to the supermarkets ready to buy, but Nesfruta was not able to make a sale. To fully realize the hit campaign was to have enough of the product on the supermarkets with enough supplies to meet the demand.

Inventory Systems are created and used mostly to ensure that you have enough supply. You cannot have over supply because it will increase your cost on warehousing and sometimes items are perishable. And you cannot have under supply because if you experienced a stock out, you have just raised an excellent campaign and brought customers to your competitors. It is a system most companies use to plan the production process and its distribution. It involves various critical components such as raw materials, finished products, SKUs count, re-order level, forecast, warehouse management and distribution (like trucking).

Smart Shopper’s Guide in choosing an Inventory System

Our company, Creating Info. is often contracted for Inventory Systems by different types of businesses here in the Philippines. Our customers mostly come from the manufacturing and merchandising business. We usually landed contracts with medium size businesses but was consulted by other businesses of various sizes. In this article, we wanted to highlight the 7 critical questions smart IT systems ask when deciding on which type of Inventory Systems to buy/contract. Take note that in the items below we are choosing on 4 types of inventory system as an option – manual inventory, off-the-shelf (OTS), software-as-a-service (SAAS), and custom built systems (CBS).

1. What type of users does your target system have?

You can run a small operation with a highly sophisticated system or you can run a large scale operation mostly based on manual inventory system. The difference between one over the other in my opinion is not so much whether they are willing to spend for their system but more of how the users will embrace an automated system.

Young and Tech Savvy – Youth is a state of mind rather than a number. You can be young even when you are 60 and be old even when you’re 20. If your users had been known to be open to explore technology and was committed to leave as much work to the machine as possible, any type of automated system will work.
Thrifty and Organized – Some users are very organized such that even if they run the entire operations through pen and paper, they are still on top of the situation and can get things going. Since your system already works and you are already familiar with it, continuing with manual will still be a good way to go. But if you want more free time for yourself, going for a customized automated system will likely be best for the thrifty and organized. An off-the-shelf or software-as-a-service solution will require a lot of change and might be viewed negatively.
New in Town – You may be a new business man or new to this line of business. If the user is not yet very familiar with the operations and is still in the process of getting to know more. An off-the-shelf or software-as-a-service will be a good way to go. It will serve as a good introduction on the things that needs to be considered in running the business and will be educational for them. It’s also more affordable.
Hesitant but Necessary – I think most people fall under this category. The users are not very open to change, but they are in a state where they feel its necessary. Some might already have an old system running, some needed to be more organized because they are losing business, or still others just needed to set some tasks aside because they need to focus on other things. I think any automated system will work here. Regardless of which approach, remember that change management and convincing the users to change is the key to success.

2. What type of business are you in?

Generally, almost any types of business you are in will be workable with an inventory system probably except for services industry 🙂 Here’s some list of our usual customers.

Manufacturing – Manufacturing customers will likely go for a customized application. Because the production process of each businesses are generally different industry by industry and company by company, making sure that you have a system that is tailor fitted to your operation will be a big plus factor.
Distributors – Distributors are more heavy on the suppliers, warehousing and deliveries. For me, the biggest concern with distributors is whether or not your suppliers or logistics partners will have some demand for connectivity with your system. If your distribution company is more straightforward and will not require certain reports or connectivity to their system or you prefer to keep that part manual, an off-the-shelf might work. Software-as-a-service is also a good option such that its almost equally cost-effective and you’ve got good support from the vendor and can request for customization in the future if you find it necessary. If some customization is necessary and you have multiple suppliers that needed it, a custom built application will still be the best way to go.
Merchandising – There are many off-the-shelf and software-as-a-service option available for merchandising. Since the operation is more straightforward. What you are looking for is the real-time reporting of your current inventory levels, and some notifications. Many programs already offer these solution. If you want to further save on costs though, doing a better forecasting will be essential too. When you look for off-the-shelf or software-as-a-service option, make sure you have one that will have a good support in case you need help.
Group of Companies – Some corporations are a group of companies with different lines of businesses but reports to the same board or family members. When you are in a group of companies what you will need is an enterprise level application that is safest to be done by custom built. I suggest you do not be tempted to go for the off-the-shelf solution because they are not flexible for your enterprise needs.

3. What is the size of your business?

In one of our older posts, we used DTI’s categorization to determine the size of your business:

Micro Businesses – in our assessment, micro businesses are probably best recommended to take reasonably priced off-the-shelf application or possibly software-as-a-service. Since the operation is relatively small, most micro companies also prefer not to invest in added systems to protect their bottom line. Both OTS and SAAS will allow reasonable scale but hopefully provide a relatively complete functionality for the business.
Small Businesses – If you are running a small business and will only have limited number of your employees use your software (like 1 to 10). An off-the-shelf solution might still work and can still handle the scale. But if you have more than that many users the key word here will be the need for support. We assume that with this scale of operation most automated system will be able to handle the amount of transaction (based on the asset value) but supporting many users can be the problematic part. For me, software-as-a-service will be a winner for this category because of the cost-effectiveness and the access to customer support. If you do decide to go for a custom built system, make sure you have a maintenance contract.
Medium Business – For me, this is generally the same with small businesses other than the size of your transaction. My concern with going for software-as-a-service is whether or not your provider’s server can handle this much transaction. If your company is in the business of high value items and the number of transactions are relatively small. A SAAS system might work as the scale will still be small. But if you are in the business of low value items and is achieving profit through economies of scale, make sure that your contract with your SAAS have the server capacity. One safer way is also through a custom built application where you are fully aware of the hardware requirements and is in control of it.
Large Businesses – What you will likely need is a custom built enterprise wide application like an SAP. You can also have this built in house or through consulting services. Automating this system is not a joke, make sure that you pick a provider with a reputable reputation and have extensive experience in building these kinds of systems. The impact of a good or bad software decisions can be potentially costly at this stage so don’t just go with the cheapest provider, pick one with an excellent track record.

4. What’s included in the cost?

Vendor’s contract usually just include the estimate of building the system and the support it required up to a certain warranty period. On top of purchasing the system, there are other costs that you need to consider:

Hardware – you may need to buy a new computer, printer, get internet connection, get a server, and other peripheral equipment like bar code scanner. Depending on how many you will have to buy, this can also be costly.
Server – some systems needs to be hosted if its shared by different users. You can either get this as web hosting or you need to host your own server.
IT Administrator – If you purchase these equipment and start to run the system, you might need to hire an IT administrator for your office. Take note however that you can also outsource this task to your vendor and come up with an agreement.
Re-work or enhancements – Software also have a warranty period. It is primarily the responsibility of the customer to test the application within the warranty period for any changes. If you find bugs or require enhancements, you will need to go back to your vendor to have another quote. Take note that the rates might have already changed at that time. Consider having a maintenance contract where the changes are done per hour.

5. What is the timeline?

Each type of systems can have varying timelines and is also dependent on your company’s commitment in bringing up the system. Here’s some of the things you need to consider:

Development Effort – if the system you chose requires development of the system, your provider will usually quote you by man days. The man days will show how long does the provider estimate will take to build the system if only 1 person is building it. Take note also that you need to give you and your vendor some allowance for some unexpected requirements encountered along the way.
Project Schedule – you and your vendor also have other things they might be working on. It’s important that you guys discuss the timeline on when they can build the software and when you will be available for questions, further requirements and testing. Your timing might vary and the availability of 2 parties for the project will determine its final delivery date.
Testing effort – once your provider deliver you the system, you need to also commit a time to test and make sure it does everything as you expect. Usually this is 1 to 2 months for the system we’ve built.
Go Live – You usually set the go live date. Sometimes the need for the organization to have a system up and running was also a critical factor they put into consideration in picking a system. A software-as-a-service for example will have most of its basic functionality up and ready fairly quickly. They can just send a follow up for any custom modules you will need afterwards.

6. What other non-tangible factors do you need to consider?

When you go about taking a big leap like this, there are also non-tangible factors that needs to be considered:

Change Management – for me this will take the most effort. People seldom like change, but they are willing to give it consideration if they understood the reasons why they need to do something. Some people might end up being redundant, and you need to plan for an alternate career for them. You need to be able to allocate time to talk to key individuals in your organization and to manage the change in the process.
Project Management – this can potentially be a daunting task with a good amount of moving parts. It’s best for you to save cost, time and effort to make sure you put someone in charge of this effort who will make it a priority. This person will have to see that the timelines are met, that the commitments and deliveries are also being met.
Employee Retooling – coming from a manual system or to a new system, your employees might require some basic computer training and some hands on training in the application.

7. What is your budget?

Notice that I placed this at the bottom of the list to consider, but I do know that most people set this at the top. In the movie “Confessions of a Shopaholic” the guy said cost and worth are 2 very different things. I hope that you would take your time to quantify what you can really afford in relation to the total benefits that you are getting. Most people we’ve talked to respond to IT system pricing with a sense of shock. Make sure you find what is best value for your money taking all things you have to consider. If you really can afford it, I hope you will find the guide questions useful in considering which aspects you can compromise and which items you can’t.

I know this is a lot of information to take in, but I do hope you find it useful. For any questions you might have, please contact hello@creatinginfo.com. 🙂