Part 2: How Cannabis ERP system costs can lower operating expenses and drive profitability
In our last post, we started to tackle the question, “Is Cannabis ERP worth the price?” We examined ways Cannabis ERP helps operators optimize inventory holdings and lower their carrying costs. Considering an estimated half of the working capital of a supply chain is in inventory, it makes sense to focus our Cannabis ERP system cost-optimizing measures here. However, in addition to this, there are other related areas of cannabis operations that can benefit from the efficiencies Cannabis ERP delivers.
In this post, we look at purchasing, capacity planning, forecasting, quality management, and sales to see how the Cannabis ERP system cost can lower operating expenses and drive profitability.
Purchasing and Procurement
Another area where Cannabis ERP system costs can drive down inventory expenses is in the purchasing and procurement process. By centralizing procurement activities, an organization can lower direct and indirect spending by bringing both under better control. As a reminder, direct spend is the purchase of materials and supplies that are directly associated with the production of goods being made. Indirect spend is everything else — utilities and lease payments, for example — that are not directly incorporated with a product being manufactured.
Centralized purchasing is an impactful way to reduce unmanaged spending, though it can be a difficult task in the cannabis space. Since this industry is fragmented by state, additional considerations here must be taken into building such a strategy. However, it is worth the attention. When purchasing is decentralized, it is difficult to grasp the scale of spending. And, if you can’t accurately assess what is being spent — on what and by whom — how can you manage it effectively? Centralized spending increases your company’s purchasing power and helps achieve economies of scale. It also makes it easier to provide careful scrutiny of suppliers to identify areas of strategic sourcing of materials at a lower cost or speedier lead time.
Cannabis ERPs provide the visibility to better understand purchasing needs, to identify purchasing trends, and even break these down by vendor so companies can build scorecards and gain control of how they procure critical supplies to operate.
Capacity and Throughput Planning
Unreliable production forecasts can lead to too much inventory on hand, which increases overhead costs and creates waste. Conversely, judging throughput too conservatively can result in underutilized staff, supplies, and equipment. It can also leave you short-stocked and needing to pay overtime on rushed production to meet unplanned demand. Jamming in more work in less time can lead to dangerous outcomes. Often, an overloaded operation makes errors, clogs processes, and requires costly additional rework to make things right.
Full-function Cannabis ERP systems have production scheduling and capacity planning functionality to help you make informed production decisions so you’re optimizing both your teams and your equipment. It can also help ensure processes are being followed, priorities are clear, and internal quality controls are adhered to.
Quality Management Systems (QMS)
Poor quality management causes problems regardless of which point in the supply chain they occur. Naturally, the further into the production process a product goes before faults are found, the greater the impact on costs. Cannabis ERPs can help identify problem items — and even problem suppliers by providing the structure of a comprehensive Quality Management System (QMS).
A QMS ensures items are tracked throughout production and can quarantine lots until testing is complete. When items are rejected, whether at receipt or during production, follow-up analysis can help identify where quality issues arose, so that you can work to mediate them in the future. Additionally, Cannabis ERP can help you track the cost of rejects and rework so that you can better measure improvements over time.
Demand forecasting represents a critical opportunity for cannabis companies to lower inventory-related costs. Armed with accurate demand forecasts, your purchasing team has an optimal amount of time to research the best vendors, seek competitive bids, get contracts in place, and negotiate discounts. Cannabis operators with multiple licenses, entities, and locations have opportunities for even greater savings by consolidating the purchasing across entities and negotiating better discounts based on a more accurate forecast of demand.
Cannabis ERP solutions offer sophisticated and dynamic demand forecasting tools that help you visualize demand trends and make appropriate timing and quantity adjustments to your forecasts.
Sales and Market Expansion
What do sales and market expansion have to do with cost reduction? When your cannabis operation can reduce inventory-related costs, and gain deep visibility into those costs, you gain strategic decision-making power. For example, by lowering costs and improving product margins, you have the latitude to engage in sales campaigns that will help you gain market share even at reduced prices. Or launch marketing campaigns that more effectively build and establish your brand. Armed with reliably accurate cost and demand data, you can confidently evaluate market expansion opportunities and new product development ideas.
Cannabis ERP captures and helps you analyze costing data, profitability by product, sales trends, customer buying patterns, and other vital information that can help you grow and scale the business.
Is a Cannabis ERP system cost worth it?
The cannabis industry is filled with opportunity for those companies ready to capitalize. A Cannabis ERP can put you in the position to pursue those opportunities and grow your market share. Choosing the right software for your cannabis operation is one of the most important decisions you’ll make. Cannabis ERP offers the comprehensive range of tools and functionality operators in this dynamic industry need to lower costs, optimize efficiently, and scale profitably.
If you’d like to learn more about Silver Leaf Cannabis Business Central, give us a call at 480-423-8324, or email us at info@SilverLeafCBC.com.