Seven reasons why stock-outs are hurting your profitability

Distribution SoftwareAre you aware of how lost sales impact the profitability of your business? Is this issue apparent to the whole team?

Your profitability is influenced by more than just the very obvious loss of the sale and the impact that has on the bottom line.

The time spent addressing customer concerns, placing emergency orders, and sourcing products could be more usefully deployed doing the right things.  If the people involved in this include sales team members, then the time that should be spent generating additional business is lost and the impact on overall profitability will be more severe.

There are a number of factors that contribute to a loss in profitability. Let’s take a look:

1) If the stock-outs are resolved by transferring products from a warehouse that does have stock, the logistical costs associated with moving products on an urgent basis will usually hurt profitability compared to a normal transaction.

2) When sourcing a product from a competitor, the purchase price of these buy-outs is very likely to be higher than your average cost for the product. The sales target may be achieved, but margins will be reduced.

3) Should it be necessary to place an emergency order with your supplier, you’ll likely be purchasing a smaller quantity. For example, items normally brought in by sea freight may have to be brought in by air freight.  It is usually not viable to ship the normal requirement by air with the result that the emergency quantity being ordered will be smaller than usual. Volume discounts may be lost.

4)  Items shipped by container may result in “less than container loads” (LCL) being shipped. This will increase freight costs.

5) In the case of the long lead time items, the order pipeline is very likely to be full already. In situations where an existing purchase order can be brought forward so that it arrives earlier, additional costs may be incurred. This process consumes working capital and could occupy warehouse space that was intended for other products. These emergency orders are often in excess of your requirements. The time saving of air freight deals with the immediate stock-out issue, but the cost impact can be dramatic.

6) As previously mentioned, the cost of losing a customer to a competitor, especially where the customer had previously sourced a basket of products from your business, would have an impact beyond the individual stock-out issue. And that means your competitors’ businesses will be growing at your your expense.

7) The impact on the brand may be more difficult to quantify, but what’s certain is that rebuilding confidence in your brand will take time and money.  The same money could have been spent more beneficially promoting your brand. The difference between these two impacts profitability.

The impact on the sales team was explored in a previous post primarily from the perspective of the sales teams motivation and general morale. A continuous stream of customer orders is the lifeline of most businesses. Even where a high portion of a sales team’s expenses are variable (commission based), there will almost always be a fixed cost portion. Lower sales on a fixed cost base will result in reduced profitability.

What’s in Your Warehouse?

There are lots of moving parts when it comes to managing a warehouse – both literally and figuratively! How streamlined and accurate are your warehouse operations? Here are some questions to ask yourself:

  • How confident are your reps and accounting team in the accuracy of your inventory at any given moment?
  • How many steps (again, literally and figuratively!) does it take for your reps to place an order for your customer, then for the warehouse to pick, pack, and ship that order?
  • When inventory is received, transferred, or issued, how quickly and accurately are these transactions recorded into your Sage 100 ERP?

Warehouse management is all about efficiency. Turn your warehouse into a powerhouse with easy-to-use Warehouse Management Software (WMS), Shipping Automation, and Mobile Sales tools for Sage 100.

Join Computer Management and our partners, ScanForce and V-Technologies, for a live 30-minute webinar to see the most streamlined order fulfillment you can achieve using Sage 100.

Register Today!

The Fastest Route from Sale to Ship in Sage 100

Thursday, August 3 from 2:00 – 2:30 ET

When State Auditors Head out of State

Auditors are on the move. While most businesses expect (i.e., dread) to be audited by their home department of revenue, it often comes as a surprise to learn that state tax authorities routinely send auditors to, or hire auditors from, other states to capture unreported sales and use tax revenue. Some states go so far as to have remote offices.

For example, the Texas Comptroller has audit offices in Los Angeles, New York City, and Tulsa, Oklahoma. California has field audit offices in Chicago, New York, and Houston. There are Missouri Department of Revenue offices near Chicago, Dallas, and New York, while the Florida Department of Revenue has offices in Atlanta, Chicago, Dallas, Houston, Los Angeles, New York, and Pittsburg. The Utah State Tax Commission doesn’t specify where all it has sales and use tax auditors but notes that they “spend a majority of their time at taxpayers’ offices looking at detailed sales and purchase transactions” and “travel to locations all over the United States to perform their work.”

Field auditors employed by the Washington State Department of Revenue may audit businesses in multiple states. The Department divides the country into several sections: an Out-of-State North District (Eastern Iowa, Illinois, Indiana, Michigan, Minnesota, Ohio, Western Pennsylvania, and Wisconsin), an Out-of-State South District, and so on. Field audit offices develop and implement audit programs to optimize accurate tax reporting and payment by businesses located throughout the target area.

What do auditors in other states do?

Auditors frequently examine sales by companies that are headquartered in other states but have nexus (a connection strong enough to trigger a tax collection obligation) in the auditor’s home state. Yet a company doesn’t have to be registered with a state to be targeted by that state’s audit division. While many audits are selected by a random sampling of registered businesses, auditors knock on the doors of unregistered businesses whenever evidence suggests that they may owe the state tax revenue. This is true both in-state and out.

Many states have increased audits since the Great Recession, hiring new auditors as needed. New Mexico’s Audit and Compliance Division has added approximately 62 FTE employees since economy plummeted. And in 2015, the Wisconsin Department of Revenue announced that it needed 102 additional auditors and 11 additional agents to help uncover what was estimated to be approximately $80 million in unpaid tax revenue. Many of the new hires are focusing on businesses based in other states.

States work together

In addition to sending auditors to other states, state tax administrators frequently work together. Regional information-sharing agreements between states, such as the following, can greatly help facilitate audits:

  • NESTOA, North Eastern States Tax Officials Association (Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont)
  • SEATA, Southeastern Association of Tax Administrators (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia)
  • MSATA, Midwestern States Association of Tax Administrators (Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Wisconsin)
  • WSATA, Western States Association of Tax Administrators (Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming)

There are other sorts of information-sharing agreements as well. New Mexico shares information with — and receives information from — three tribal governments. And the Multistate Tax Commission Joint Audit Program for member states “provides obvious economies of scale to the states” and “relieves the taxpayer of the burden on multiple ongoing audits.”

Oklahoma to base auditors in other states

Oklahoma doesn’t currently base auditors in other states. Like Utah, it sends auditors to various out-of-state locations as needed, and between 2014 and 2017, it conducted more than 460 audits of remotely based businesses. But a recently enacted law will soon enable the Tax Commission to develop a stronger presence out of state.

HB 1427 authorizes the Oklahoma Tax Commission to create and maintain an Out-of-State Tax Collections Enforcement Division. It enables the Commission to “employ full-time, unclassified, out-of-state tax auditors or full-time-equivalent contracted auditors” to enhance the following:

  • “Sales and use tax collections related to sales or transactions involving residents of Oklahoma and out-of-state vendors with a nexus to the State of Oklahoma”
  • “Collections of any other unpaid taxes owed the State of Oklahoma by out-of-state individuals, firms, and corporations”

The Tax Commission may audit any individual or business it believes may owe tax revenue to Oklahoma. The law takes effect November 1, 2017.

How would your business fare during an audit?

Get your free copy of the Sales and Use Tax Audits Uncovered report to learn more about audit triggers, how to avoid them, and how to protect your business against unnecessary tax compliance risk.

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New Account Manager at CMS

We are excited to introduce our Computer Management Services’ new account manager, Mary Lu McNulty. Mary Lu has 20 years of experience meeting the needs of customers in a variety of industries, most recently in the medical device arena.
Over the next few months, she will be learning all she can about our customer’s business and how Computer Management Services (CMS) can better serve our customer’s needs. In the meantime, please don’t hesitate to give her a call or send her an email if there is an urgent matter you would like addressed or just to introduce yourself.
Mary Lu can be reached at extension x.220 or via email at mmcnulty@cmsct.com

Go Far Fast: Go Faarrgh

MaryBeth Gossart and Greg Tisdale participated in the Go Fa18920302_10211012607765329_6919726464709920290_nr Fast: Go Faarrgh which took place on June 3 in Durham, CT. MaryBeth is the VP of the program and co-founder of the race. CMS was also a sponsor of this event. This pirate themed event was a festival of running featuring 5K | Bean Race |Kids United 1/3 M| 1/2 M | 1 M | 2 M races. Go Far serves children in Regional District 13, the towns of Middlefield and Durham, CT. This program currently runs during recess at 2 elementary schools (grades 1-4) and one middle school (grades 4-6). In the elementary schools, students run or walk laps and have their mileage recorded by a mentoring adult. Students are given small prizes (like Legos on a necklace, or charms) every mile, a t-shirt at 26.2 miles, and other prized for multiple marathons in each academic year. Children benefit and learn about the importance of achieving a long term goal through our structured program. For more information on this great charity, click here.