Prevent Revenue Leakages in Manufacturing with ERP
Revenue Leakages refers to the unintended loss of potential income or profit in a manufacturing company. Revenue leakages are invisible holes in the manufacturing industry. They are not visible in general, but create a big hole in profitability.
Revenue Leaks occur primarily due to reasons such as manual processes, data present in silos across departments & locations, poor visibility, and inadequate control over key business areas. This may result in errors, oversights, non-compliance, chances of theft & fraud – all of which can lead to revenue leakages.
In manufacturing companies, revenue leaks can occur in various areas such as inventory management, procurement, production, sales, and distribution, etc. If you can prevent or fix the revenue leakages, you will be able to improve profit margins significantly.
Areas to watch for preventing revenue leakage in your company
- Overstocking & stockouts: Both these conditions are dangerous. Overstocking is like money sitting in the form of material and a stock-out situation means loss of production hours and resources.
- Improper Procurement Planning: By doing long-term procurement planning & negotiation with the vendor organization, you can save a significant amount of money & time. Further avoiding urgent purchases, and finding alternate items or vendors are areas to investigate.
- Collection & Payments: A delay in the collection creates cash flow problems and impacts your day-to-day operation. Further, your delay in vendor payment does not help in building trust. Having goodwill in the market helps you in negotiation and cost savings.
- Frequent Breakdowns: This not only costs you money, but you lose production opportunities and resources. Not being able to utilize your assets fully is one of the revenue leakages.
- Wastage & Rejections: Rejection and wastages of material are direct revenue losses. Similarly, wastage of people’s time, redundant work, and manual work all are signs of wastage and revenue leakages.
- Incorrect Billing: Another cause of revenue leakage in the manufacturing industry is incorrect billing. Users may bill incorrect quantities or amounts for your product which is a direct loss of revenue.
- Incorrect Accounting: Due to the large volume of transactions in the manufacturing industry such as inward, outward, and logistics there are chances of incorrect entries, duplicate entries, or fraud.
Revenue leakage is a significant problem faced by the manufacturing industry, resulting in working capital issues, lost revenue and reduced profit margins. Are you observing similar revenue leakages in your manufacturing company? You can address this by implementing robust processes for inventory management, billing system, accounting processes, etc.
How Enterprise Resource Planning (ERP) solution helps set up systems and processes to prevent revenue leakages
- Integrated Data Management: ERP solution integrates data across functions, departments, units of a manufacturing company at a central location and provides real-time data for making timely & informed decisions. This helps identify areas of potential leakages
- Digitize & Streamline Operations: ERP helps streamline & digitize operations and implement Standard Operating Procedures. This ensures well defined, workflows, enables optimum utilization of resources, minimizes wastes, avoids delays & bottlenecks and improves process efficiency. Thus, plugs revenue leaks due to inefficiency & saves costs.
- Improves Financial Discipline: ERP solution helps define budget for each department, unit, cost centre. This improves financial controls. ERP also helps implement standard processes for procurement /inventory management to avoid unnecessary or unplanned purchases. With ERP you get a complete visibility into transactions thus, reducing risk of revenue leakages due to fraud, or non-compliance etc. ERP helps implement Credit Control Policy & Dunning process to ensure payments are received timely.
- Define KPIs & Monitor Performance: ERP Software helps define & implement KPIs for every business function. ERP solution also provides detailed reports, trends, and insights for every function. By monitoring and reviewing KPIs against benchmarks regularly, manufacturing companies can identify the areas of improvement in their business and work towards continuous improvement thereby ensuring cost savings.
- Optimize Inventory & Procurement Processes: Inventory management and procurement account for almost 60% of a manufacturing company expense. Hence optimizing these processes is important to prevent revenue leakages.
ERP solutions facilitates demand planning based on historical data, trends and more. It also provides advanced Material Requirement Planning to ensure optimum inventory levels and right products are available at right time with minimum overstocking, wastage.
In terms of Procurement, ERP solution helps aggregate indents from multiple departments, help improve negotiations leverage. All this helps reduce inventory costs as well as losses due to inventory becoming old or obsolete.
Summary
To summarize, revenue leakages can directly impact the working capital, which is the lifeline of a manufacturing company. To proactively minimize risk of revenue leakages / plug the leakages manufacturing companies can adopt ERP solution. ERP digitizes & streamline processes, helps adopt best practices, provides complete visibility, and improved control over operations for enabling continuous improvement.
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