Process Industry Distributor Uses ERP to Reduce Inventory 50% and Office Staff 25%
Implementation of a new enterprise resources planning (ERP) system has helped an industrial distributor reduce inventory by 50% and reduce administrative staff 25%. In the past, running multiple custom-developed financial and distribution software packages, Hesse Industrial Sales and the David S. Reynolds Company had difficulty determining what was in inventory. In addition, considerable time was required to coordinate and validate the multiple systems. Several years ago, management made the decision to implement Expandable ERP; a personal computer based package that fully integrates the manufacturing, distribution and accounting functions. By accurately tracking the firm's inventory and providing visibility to management, it was possible to eliminate many slow-selling items and convert the dollars to faster-moving products. Integrating all aspects of the firm's business, particularly the critical interface between distribution and accounting, saved so much time that it was possible to eliminate three administrative staff positions through attrition.
Hesse Industrial Sales and the David S. Reynolds Company are involved in selling and servicing engineered products to the process-oriented, original equipment manufacturing market. Primary products include heat exchangers, industrial silencers, pumps, liquid filtration and dryer equipment, single and multiple stage turbines, pressure transmitters, pressure gauges and switches, valves and other products to control and monitor pressure, temperature, flow and level. The firm also sells extensively to the major chemical processing and utility plants in New York State, Northwestern Pennsylvania, and Ohio. John Hesse founded Hesse Industrial Sales in 1963. The David S. Reynolds Company was founded in 1964 by Dave Reynolds, and was acquired by Hesse Industrial Sales in 1989. The firm's joint headquarters and warehouse is in a 30,000 square foot facility in Orchard Park, NY. Aurora Industrial Machining and VANEC are wholly owned subsidiaries of Hesse Industrial Sales.
As Hesse expanded by acquiring additional businesses, the firm inherited a series of home-grown computer systems, all of which ran on various platforms. Maintaining these systems was a nightmare since most of them had been developed and were understood by a single person who had, in many cases, moved on to a different position. The inability of the systems to communicate with one another meant a considerable amount of time in preparing and entering consolidating entries. At the same time, information was scattered throughout multiple systems making it a very difficult and time-consuming process to answer basic questions such as "how many of a particular item do we have in stock?" and "how much credit have we extended to a certain customer?"
According to Charlie Dias, Sr., MIS Manager for the firm, the lack of timely information made it difficult for the company to keep a handle on inventory. "It would have taken an enormous amount of time to accurately track our inventory with the old systems," Dias said. "As a result, we had items sitting on the shelf that had become obsolete and hadn't sold in years. In some cases we continued to order more items because information on buying patterns was difficult to obtain. Often, we accepted returns without charging a restocking fee because we didn't have any idea how much of a particular item we had in stock. Another problem was that there was no way to track shipping charges. As a result, customers were sometimes not charged for shipping or charged at a lower than actual rate. Finally, when a customer called and asked whether we had an item in stock, often the only way to find out was to tell the customer we would call them back and go out in the warehouse and check."
Selecting an integrated system
Several years ago, as relatively inexpensive ERP systems began to appear on the market, Hesse managers decided to make a thorough investigation to see if one of these systems would be capable of meeting the firm's requirements. Their primary requirement was for a system that could handle their entire business - including both the distribution and manufacturing units - as part of a single, fully integrated environment. Second, they were thinking of moving to a personal computer platform to save money. Dias and other Hesse managers selected Expandable ERP, from Expandable Software, Inc., Santa Clara, California because it met these requirements. Another strong factor was Expandable's unusually powerful query capability that made it possible to generate impromptu reports that provide instantaneous feedback on the performance of any aspect of the business.
Reducing inventory 50%
The new ERP system made a big difference from the very beginning," Dias said. "Probably the most dramatic was the way that it helped us quickly get a handle on our inventory. Once we had developed good clean inventory and sales information we discovered many of the items that we were carrying hadn't sold in a long time. We were able to convert many of the dead inventory items into higher demand items, and obsoleted the rest. The software was also implemented in the warehouse and a policy was established that items only go out of the warehouse with a sales order and only come back with a return material authorization. Once the new system was established we were able to reduce our inventory by more than 50% while continuing to increase sales and service."
"Expandable has greatly streamlined the sales process that lies at the heart of our business," Dias continued. "Instead of running back to the warehouse to see if an item is in stock, the salesperson can get the information and complete the order in a single phone call. It even provides a credit card module so there's no need to look anywhere else. The software prompts the salesperson through the process of completing the order, ensuring that nothing gets left out. For example, it forces the salesperson to select the shipping method and terms. When the shipment goes out the door, the shipping department enters in the freight amount and it automatically gets added to the invoice when the invoice is created. This ensures the company invoices for freight when appropriate, saving a considerable amount of time and money."
Streamlined communications and reporting
"We have also seen major improvements in the area of management reporting," Dias said. "In the past, our management team was dependent on administrative people at each of the operating subsidiaries to provide reports on a timely basis. Most of the time they waited for a month or more. Now I can generate all of the reports requested by management on the first day after the period closes. The owner gets sales, backlog, and expenses, by salesperson, product and customer. I can also handle spur of the moment requests for information in minutes using Expandable's query feature."
"The elimination of consolidating entries and division level report generation had a big impact on our administrative expenses," Dias said. "A job that used to occupy the full time efforts of several people can now be done by one person in their spare time. The ability of the software to handle the entire business in one integrated database has also eliminated a lot of meetings and phone calls. Instead of calling someone in one of the divisions for information, I can do a simple query and have the answer in a few seconds. As a result, we have been able to eliminate three staff positions as people moved to other positions inside or outside the company. The amount of MIS support time has also been drastically reduced. I no longer need to come in on Sundays and even get a chance to work on our web site (www.hessereynolds.com) once in a while."
"The next step," Dias says, "will be implementing the software on the manufacturing side of the business. The software's sophisticated MRP capabilities will immediately explode every order we receive into which components are required to produce it. Entries made in the manufacturing module transfer over to financials automatically as soon as they are posted. The fact that MRP is integrated with inventory and financials means that we know in real-time exactly where we are."
"All in all," Dias said, "the new software had a major impact on our business. By giving us a clear understanding of exactly where the holes in the bucket were, it has significantly improved the profitability of the firm. The reduction in inventory has transferred $600,000 from inventory into cash. More than an accounting system, the software package is a communications tool that provides us with all the information we need to run the business efficiently while eliminating the need for a large amount of routine communications and legwork."
For more information about Expandable, contact the sales department at 408-261-7880 or by email at email@example.com.