Reducing Headcount with InOrder ERP

Nobody talks about “reducing headcount,” but this is a key benefit to a new enterprise software system. If you spearhead a project to buy a new enterprise software system, will it eliminate your position? Will this happen to you or your co-workers?

Now that I have your attention, we need to see why this is important to understand. Typically, the goal of any organization is usually unequivocally to make money for the stakeholders. By definition, this goal can only vary in a non-profit organization, in which case it becomes more difficult to define since non-profits tend to have a lot of volunteers, and each may have their own goals in mind. In either case, it is important that everyone in the organization aligns with the goals of the organization. Of course, it is up to the leadership to find ways to do this.

But whether the organization is trying to make money for investors or to accomplish another goal, someone needs to fund the organization. The ability of the organization is limited by the funding and the organization’s return on investment for this funding. In the case of a for-profit, why would the stakeholders invest in an organization that pays a 10% return when another organization can pay 15%? And for a non-profit, a better return on investment delivers an ability to grow faster with less on-going funding.

The organization cannot just “grow!” Ultimately it helps if everyone in the organization understands that an organization is better off if it can grow its return on investment (ROI).

Focusing on merchants and fulfillment companies, growing ROI requires that an organization do two of the following three things, at the same time:

  • Increase Throughput
  • Reduce Headcount
  • Reduce Inventory

Increasing throughput is the most obvious, as this means processing more orders to increase revenue.

How though, can you increase throughput while reducing headcount or inventory? At first, this seems counter-productive!

The answer is to first realize that we are not talking about simply having layoffs and ordering less inventory. We are talking about Headcount and Inventory as a percentage of the overall throughput. For every additional thousand orders you process, how many additional people need to be there, and how much additional cash needs to be tied up in warehouse inventory (and other commitments such as warehouse space and equipment)?

Let’s say your staff of 10 and inventory levels can handle 1000 orders per week. If you need to double your staff to 20 and double your inventory for an additional 1000 orders per week, the return on investment stays the same.

But if you can increase your throughput by another 1000 orders per week without doubling your staff but you doubled your inventory investment, you’ve improved return on investment. Likewise, if you double your orders per week, double your staff, but don’t need to double your inventory in the warehouse, then you’ve improved your return on investment. For example, a million dollar investment in a company that originally returned a 10% profit of $100,000, just doubled to a two million dollar investment that returns $300,000, or 15%. Each dollar invested by a stakeholder makes a bigger profit each year.

As an organization grows, processes that used to be simple get exponentially more complex. For example:

  • Receiving, checking, and storing inventory efficiently
  • Processing orders and returns in a way that keeps customers happy

But no matter how efficient these processes can be, the questions that management needs to answer are:

  • How much inventory will we need to order, at a minimum, to handle our throughput requirements?
  • How few people will we need to handle our throughput requirements?
  • Additionally, management needs to make marketing decisions that effectively grow throughput.

For these three reasons, an organization must have an enterprise-wide management system like InOrder, combining data from all areas into a big picture that visualizes what is really happening.

Without this system in place, each department tends to put their own smaller system(s) into place. Each of these subsystems has its own champions, its own learning curve. You might have a website database system and a phone order processing system, feeding a warehouse system, a separate contact management system and an outsourced email marketing system, a customer feedback system, and then some managers with their own spreadsheets or even three ring binders that need to be checked several times a day to answer management decisions.

This is known as a “silo effect” where clusters of private data reside, and are sometimes even guarded from other departments, and in a few cases, held hostage. When this happens, your IT department naturally starts building an array of applets and data feeds to gather all of this information together to enable management decision making.

Your clerical and managerial staff are spending more time collating data into spreadsheets, instead of simply reading the results and then having time to interpret them.

As the organization grows, this ad hoc approach inevitably becomes a house of cards that often relies on one or more key but over-worked and over-stressed IT champions. Rather than leveraging this team to produce the next level of data analysis for decision support, they spend all of their time patching things and just keeping core systems up and running.

With an ERP such as InOrder, your core systems become a utility much like electricity and plumbing, and a candidate for continuous process improvements as new software features are released.

By understanding the need to reduce headcount to improve the stakeholder’s return on investment, we can then see that this often actually means having the ability to grow your organization’s throughput at a faster pace than the corresponding growth in headcount, as well as improving the utilization of existing headcount, in all areas of the organization.

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