Our latest guide details a range of challenges facing the UK distribution sector today – such as utilizing Enterprise Resource Planning software, how businesses can prepare themselves and acquire distribution finance in order to match the raising benchmarks and evolving competition within the distribution industry.
Understanding Distribution Management: The Supply Chain and Enterprise Resource Planning
Supply chain management is evolving and its spokes of inventory and customer relationship management, as well as distribution are crucial to driving business effectiveness.
ABFA’s latest quarterly statistics indicated a growing proportion of Distribution industry clients using asset based lending compared to the other core UK industries – 23.5% in Q4 2017 compared to Q4 2016’s 22.9%. As distribution firms look to grow or redevelop their financial models and operational models, it’s worth reassessing the potential constraints on projected profit levels.
Technology is a key factor in the evolving supply chain, with Enterprise Resource Planning (ERP) systems and software playing a prominent role across manufacturing, distribution and wholesale firms alike, affecting production warehouses, logistics and personnel. ERP according to Investopedia – “integrates areas such as planning, purchasing, inventory, sales, marketing, finance and HR”, along with key systems such as stock control and order monitoring, to allow for more efficient communication between departments and to facilitate improved business decisions. If your ERP system is on premises or is a legacy build, you may be in need of an upgrade in order to possess cloud capabilities, integrate new and more flexible workflows, introduce a multi-tiered system or improved ad hoc reporting. An upgrade in ERP software could allow you to better align your financials with inventory management data or understand your human resource management abilities to recognise opportunities and develop data-driven, substantiated cased to fulfil the opportunities.
Strengthen Your Business Partnerships with Manufacturers and Retailers
For those SMEs just starting out in the distribution industry, it’s vital to recognize the importance of the transportation logistics and manufacturers within your supply chain.
Some distribution firms may hire drivers and / or own factories, although it may not yet be feasible for your company if it’s an early stage of development. This means that you’ll need to ensure any of the manufacturing businesses responsible for producing your desired goods and transport businesses responsible for delivering them to customers are paid in good time and kept informed of tailored orders and production delays respectively so as to keep each other’s operations running smoothly.
The buying agreements with your manufacturers are crucial to your performance, as well as other related factors such as the varied volumes of purchase orders tied to them, the regional markets being targeted for distribution and the risk associated with the product type. For example the state of the produce – be it at finished state or if they are non-perishable goods, can have an impact on financials in terms of product liability and defective product costs and eligibility for cashflow support in the form of trade finance.
Once you’ve implemented ERP software to strengthen the communication between your firm’s departments as well as with manufacturers and retailers, if production progress is shown to frequently disrupt these business relationships, then it’s imperative that you ascertain the causes of these delays at the earliest possible opportunity. Often late payments play havoc across the supply chain, for instance, forcing manufacturers to wait up to 120 days for their finished goods or distributors just as long for their completed deliveries; in that case, you might consider invoice finance, which allows businesses to pay their debts long in advance of full payments from their customers by receiving a proportion of their invoices’ value within around 24 hours. Taking advantage of this popular cashflow support mechanism will undoubtedly help your company to preserve its commercial relationships with manufacturers and retailers alike.
Looking for Distribution Finance to Achieve More
Few periods come to mind in which the distribution and wholesale sector businesses have experienced such as shift in market concentration, as that which we’ve seen in recent months, including Tesco’s acquisition of the UK’s largest food wholesale operator Booker Group, Morrisons’ long-term franchise and wholesale supply deal with Sandpiper Cl and most notably Sainsbury’s and Asda’s merger. While at first these watershed developments might only appear directly threatening for wholesale distributors as they’re faced with bidding against merged corporations now packing double the commercial punch, in reality all distributors need to take note given the situation’s wider context.
Amazon, the industry-revolutionizing online retailer has solidified its global position in wholesale distribution through advanced technological experimentation and operational efficiency models – an innovative and radical example being drone-based / one-hour deliveries which has likely led to the rationale behind the major supermarkets’ growing desire to acquire and gain market power; combatting an existential crisis and adapting to survive.
What becomes of distribution businesses, then, if they’re left to bid against these intimidating industry titans in e-auctions? The obvious next step is for them to secure further distribution finance to submit tenders which stand a chance of matching up to even the most substantial competitors – that’s where an unsecured business loan might come in handy. Here you’ll agree a set amount of commercial distribution finance with your chosen funder to be dispensed over a specified window of time, from several months to multiple years depending on your requirements and current revenue income streams. As such, unsecured business loans can improve invaluable in accessing the funding needed to place higher bids and secure further distribution work in the process.
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If, like so many other firms operating in this beleaguered industry, you’re used to waiting between 30-120 days before receiving funds owed for fulfilled orders with only delivery notes to show for them in the meantime, then another solution could be to pursue an invoice finance arrangement. This increasingly popular facility can provide distribution finance in the form of a high percentage of your invoices’ value, often within as little as 24 hours of an order’s completion, which in turn could enable your business to invest internally towards your ERP system or to strengthen agreements with crucial business partners.