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4 Ways An ERP System Enables Retailers To Improve Profitability

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An ERP system can make dollars and sense of maximizing profit margins. Retailers can increase their sales, reduce expenses and improve overall profitability through key analytics. 

It’s easy to get lost in a numbers game with data, but an ERP system knows what directly affects profit margins. Here’s a breakdown of what an ERP system can do with those key factors. 

  1. Increase sales: When customers realize a store doesn’t have a specific product, they’ll more than likely go somewhere else, consequently taking their money with them. An ERP solution can improve sales tactics by tracking sales in real time. It will help retailers react to or take advantage of external situations that affect sales. 

    For example, an ERP system can alert managers that a store is not on track to meet its end-of-month sales goal. To remedy that, the store can create a special event to drive up sales. Or if consumer demand spikes for a specific product mentioned on a talk show, an ERP solution can help track and stock up the product. Retailers can also increase sales through loyalty programs, incentives and relevant coupons.

  2.  Improve supply chain efficiency: An ERP system can automate the supply chain process, saving retailers time and money related to order fulfillment. Let’s say that a retail chain has 10 stores that stock the same item. The chain could supply inventory directly to each store, or combine store sales and house inventory in a central warehouse, delivering items from the warehouse to a store when needed. An ERP system can consider several factors, such as economic order quantity, when recommend replenishment to stores. 

    For example, the ERP system can be taught to take advantage of a price break on 100 pieces, and recommend that purchase when stock levels reach a certain point. This certain point would take into consideration the current level of stock, estimated vendor lead time (the amount of lead time involved from the time the order is placed to the time the goods are delivered to the store), the projected sales during the vendor lead time and any safety stock determined to ensure customer satisfaction. For those who use a central warehouse, the replenishment calculation can also include the time to cross dock the vendor-received stock and transfer the goods to the stores.

  3. Pinpoint the ideal price: Cost definitely affects profitability, but setting it high isn’t the answer. Inventory turnover is important; stores don’t want the same products to stay on the shelves month after month despite discounts. Retailers can only afford to stock items that are moving. 

    An ERP system can identify that key price point that attracts customers while also maximizing profitability. Let’s say, for example, that a sportswear retailer priced a specific item at $5 last year. To maximize profits but still attract the store’s customer base, the retailer decides to price the item at $10 this year. An ERP solution can track how many people purchase the product when it’s priced at $10. If it turns out that fewer people are buying it at that price, the retailer can lower the price or offer deals and incentives to purchase at a discount while the ERP solution tracks if purchases then start to increase. From that data, a retailer can select the best price to maximize profitability and move inventory.

  4. Streamline accounting and financial processes: An ERP system increases the accuracy of profitability through streamlining the accounting and financial processes. For example, an integrated system can create a purchase order, alert accounts payable to outstanding invoices or generate bills for accounts receivable. Retailers won’t need to enter each type of information into different systems. With an ERP system, retailers save overhead costs, bring more visibility to the financial process and gain a better picture of profitability sooner. 

    So don’t get lost in a sea of numbers. Use a retail ERP system to help your track costs, manage inventory, pinpoint the right prices, improve financial processes and boost overall profitability.

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