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4 Ways A Retail ERP Solution Can Help Reduce Distribution Costs

Chart showing declining distribution costs

Reducing your distribution expenses with cost-saving measures requires the help of a retail ERP solution. It can process a variety of data and analytics that can be used to improve efficiency and maximize profits.

Distribution costs include shipping goods from the vendor to your central warehouse or transferring inventory from the warehouse to a retail location.

Here are four ways a retail ERP solution can help identify ways to reduce distribution costs.

  1. Quantity discounts: Your buyer orders 100 cardigans from a vendor, but you should consider the distribution expenses associated with this purchase order. Should you place a large order that will ship to your central warehouse or create a separate purchase order for each store location?

    You can first check to see if the vendor provides a quantity discount based on a large order either at once or over time. For instance, if the vendor offers such a discount for one large single transaction, you should have the vendor ship the cardigans to your central warehouse. However, you’ll need to calculate if the discount is greater than the transportation costs to transfer the goods from the central warehouse to your multiple stores.

    A retail ERP solution can help with storing vendor information, such as the quantity price breaks, to help you calculate which ordering method will reduce costs. Retail ERP software should also be able to pinpoint costs in order to aid in the comparison.

    For example, let’s consider when the vendor offers a discount based on contract ordering. This means that you commit to order a specific amount, such as $100,000 worth of inventory during the year, and the vendor as a result provides a discount. In this scenario, most retailers will input the vendor discount in the retail ERP software as if they’d already fulfilled the contract. However, the retailer must continually check that it’s on track for ordering enough products to fulfill the contract and therefore receive the discount.

  2. Order-level benefit: The vendor could offer you a product at the same price it offers other retailers, but provide additional benefits or other discounts when your order frequency reaches a certain level. For example, if you place 10 orders per year for duffle bags, the vendor might offer complimentary coin purses to sell at your store.

    When the vendor offers an order-level benefit, your retail ERP solution must be able to track when the discount kicks in, which of course will be after you place the required number of orders.

  3. Optimal replenishment: You can reduce distribution costs by comparing carrying costs and transportation expenses; in other words, pinpointing an optimal replenishment inventory level. For example, if one of your stores is replenished weekly with an inventory order of three pairs of pants, this minimal replenishment will eat up distribution costs of gas and employee labor. Instead of replenishing the pants during a weekly restocking schedule, you could replenish them on a monthly schedule and increase the order to 12 pants. But if you increase your quantity, you’ll have to evaluate if the carrying costs for the pants are greater or less than the money you could save by switching to a monthly replenishment schedule.
  4. Inventory management visibility: Another way a retail ERP solution can help reduce distribution costs is by providing increased visibility into your current distribution process. For example, your ERP analytics might show that you’re incurring high carrying costs in your warehouse. That could lead you to implement a cross-docking distribution strategy. The traditional warehouse distribution process consists of taking the item off the vendor’s truck, placing it in an area in the warehouse and then transferring it to a truck headed to another store. With cross-docking, however, employees immediately sort the inventory assigned to the various stores as soon as the goods arrive at the warehouse, thus lowering warehouse carrying costs.

Essentially, having visible replenishment information and accurate demand forecasting will help you make your inventory distribution more efficient. A retail ERP system can gather the analytics to identify important cost-saving opportunities.