Inventory optimization matters for small and medium companies (SMBs). The choice ranges between investing in costly enterprise software to taking on the challenge of doing it manually in-house. For this episode of LokadTV, we explore this dilemma and try to understand what SMBs can do to get the best out of their, sometimes limited, resources.
In terms of scope, SMBs cover quite a wide range, between 2 and 30 million dollars of turnover and they usually sell physical goods, which they either manufacture themselves or procure from suppliers. Below 1 million dollars of turnover, there isn’t much possibility to optimize inventory, as at this level you can usually do a visible inspection and physically see all your inventory at a glance. You can understand how your products are moving with your own eyes.
Once the 3 million dollar threshold is crossed, then the question of tools can come into play. As your business grows, so will the number of people you employ and suppliers you have. No matter how competent your employees and trustworthy your suppliers are, mistakes will happen. To err is human is after all. When humans are involved, especially in something as repetitive as inventory counting, it’s very easy to make an error. In addition, mistakes linked to purchasing can be deadly for a small company - for example if too much stock or the incorrect stock is ordered.
As a company grows, although it might be scary to give the power to purchase - i.e. direct access to your business’ funds - to someone else, it eventually becomes unavoidable. However, this is something that business owners often try to avoid for as long as possible. We discuss this dilemma in more detail and the possibility of externalizing this competence.
To wrap things up, we talk more about how to deal with a growing business and its corresponding complexities, for example with very specific supply chain issues that even small businesses have, such as MOQs, price breaks, etc. Often, there is too much complexity for one single piece of software. We debate the software tools that seem very affordable, but do they actually deliver anything of value? In addition, we go into more detail about why, at Lokad, we decided to create our own programming language instead of relying on Python, and how to best leverage human intelligence with that of machines.
00:30 What is the size of a SMB?
01:35 At what point do you need tools to manage and optimize inventory?
02:57 We recently spoke about the role of Microsoft Excel within Supply Chains. When does Excel reach its limitations?
05:11 Are there certain tools that a CEO can introduce in order to limit some mistakes?
06:33 From the inventory optimization perspective, which are the options open to a CEO?
09:10 How about externalizing the competency? How well does that work?
12:48 So what you’re saying is that SMBs need a specialized tool that focuses on operational decisions and only that?
15:13 How about the prices of software then? Certainly seems expensive for smaller companies, is this cost something which can be justified?
17:39 If you were the CEO of a SMB, which would be the key decisions to make and the paths to follow?
20:14 Supply Chain Scientists are incredibly gifted and, as a result, incredibly expensive. For a SMB, do we really need this level of expertise?