Cost Justification

Shrinking Profits Are Hurting Many Produce Companies

Most produce companies are seeing their (once) profitable businesses grow less and less profitable each year. Produce companies need to react to shrinking profits at the very first sign of problems and make the necessary changes rapidly, or they may not remain in business during any economic slow downs. People who have been in the Produce Industry for a long time often have a good “feel” for what is profitable.

When margins were higher, that ability was very valuable, but when margins are low, it is nearly impossible to feel the difference of a couple percents. Produce margins are so low that getting a 1 percent advantage here and there can make the difference in being profitable or going out of business. Saving even one percent can mean a great deal of money on the bottom line.

With margins as small as they are now, it is almost impossible to stay in business unless you have very good profit and loss information. This information needs to be readily available to review every day, so necessary changes can be made to your business immediately.

Fluctuations in the quality of product can cause huge swings in your profit percentage from one day to the next. Large sums of money can be lost rapidly if you are not staying right on top of profits, continually scan for problems, and adjust accordingly.

Produce Magic Software can give you the tools necessary for obtaining the information you need to make these decisions.

Quality Problems Are Easily Eliminated

We find that the number one problem for Produce Companies is usually product quality problems. Since margins start out so small, giving discounts or refunds because of quality issues can destroy any profit quickly. One problem Inventory Lot can “eat up” the profit from twenty or even fifty good Inventory Lots.

It is essential to keep very accurate records of all of the costs associated with those problems so you can go back to the vendor for relief. For many companies, the money they lose on refunds, discounts and spoiled product makes the difference between being profitable, or not.

Unless the problem was caused by handling issues in your warehouse, in most cases, the losses and costs should be passed onto the vendor who supplied the product. Produce Magic Software provides VERY detailed profit and loss information, which lets companies examine the profit and loss for each product code, from each vendor, and also for each customer and ship-to.

Produce Magic Software tracks 120 user-defined costs in every Line Item and every Order Header, which is very useful information when vendors request detail on the losses.

Identify Where Money is Lost

With the detailed information we provide, you will be able to spot the ‘problem’ areas and make the needed changes immediately. Our reports show profit by product code, by vendor, and by customer, which show you where the problems are.

You will see some products that you continually lose money on each month. With detailed profit and loss information, it is easy to identify areas where handling problems are causing product to go bad, and make the changes that are needed.

If product is handled correctly, then you should make a profit on everything you do! If you’re not, you need to change your procedures and/or suppliers, so you DO make a profit on every Inventory Lot!

We give you the tools and profit and loss information to make that possible. With Produce Magic Software, you know IMMEDIATELY if you made a profit on every line item you sell. And, you know IMMEDIATELY what your profit or loss was on each Inventory Lot. If there are customers who are not profitable on some items, then you need to make special deals with suppliers to make those items profitable. That can be done easily.

Use Consignments for Loss Leader Products

When it is necessary to supply un-profitable items to your customers, it is often possible to make arrangements with another vendor to supply those products for a certain percent of the collected selling price. That way, the vendor is responsible for any returns, or product problems.

That small guaranteed profit on those losing products is much more appealing than a 10 or 20 percent loss. Since Consignment Sales are so simple with Produce Magic Software, it makes it easy to make special arrangements like this for unprofitable products. With manual systems and many produce software systems, Consignment Sales are very difficult to track and doing so is not realistic because it would require too much manpower.

Produce Magic Software automatically collects all of the costs and sales for each Inventory Lot, which makes it easy to work out any type of beneficial consignment relationship with your suppliers. A lot of our customers do some things on consignment, when they can make more money on product groups through consignments.

Produce Companies are often afraid of consignment sales because they know it requires very detailed information to be tracked. Produce Magic Software takes the work out of it and automatically collects the information for you that you need through the normal procedures.

Consignment sales can be a valuable tool in your fight to survive. In areas where consignment sales can increase your profit, they should be used.

Inventory Lot Summaries Should Always Be Used To Pay Suppliers

Everything that happens with an Inventory Lot goes to the Inventory Lot Summary. All notes or comments can be viewed from the Inventory Lot Summary in Produce Magic Software. These are all permanent notes on record.

All additional costs for inspections, sorting, repacking or special handling of any kind are entered as a payable on that purchase order (which is automatically allocated to all of the Inventory Lots on the purchase order) or directly on that purchase order line item and Inventory Lot.

The total for each cost type is displayed separately when you examine the Inventory Lot Summary. The totals for sales and returns are also shown in the Inventory Lot Summary. From the Lot Summary screen you can also display all of the actual sales, returns and credits for the Inventory Lot. The Inventory Lot Summary gives you a snapshot of everything that happened on that Inventory Lot. You will know what your profit was and what you need to deduct from the vendor’s payment. Some of our customers tell us that just knowing all of that information, when they settle with vendors, saves them about 15 percent on their product cost.

That is a HUGE amount of money when you consider the volume of product purchased. Many produce companies usually only make two or three percent NET PROFIT. So even saving 10 percent on product cost could more than quadruple your net profit! Reviewing the Inventory Lot summaries before paying vendors and knowing the exact costs and profit and loss, should save thousand of dollars every month.

It’s nearly impossible to MANUALLY track all costs and losses back to the original Inventory Lot and to the Vendor, so most companies just absorb those losses as overhead. These problems take most of the profit for many produce companies. Many companies feel that unless they have asked for “protection”, they have to absorb losses associated with quality.

If your company handled the product correctly and sold it within the normal time frame, costs or losses from product quality should be deducted from the supplying vendor in most cases. When you have all the cost information and sales detailed for each Inventory Lot, it makes it difficult for a vendor to refute your request for a discount because of the problems.

Eliminate Suppliers That are Unprofitable

We have learned that overall vendor quality and profitability remains amazingly constant for each product group each month. The profit percentage by vendor and product group is almost like a fingerprint.

We track the profit percentage for each product for each week and each month, which lets you see the profit patterns and make needed adjustments rapidly. Most produce companies find a wide difference in the profit percent for each product group and vendor. The top vendor might be 20 percent gross profit and the lowest vendor might be a negative 10 percent for the same product groups. These profit percentages are usually repeated each month because they get their product from the same places and handle the product in the same way. A vendor that had the lowest profit margin for one product group could have the highest profit margin for another product group.

Product losses are often more important than the initial cost of the product. The vendor that is the most profitable in the end, could be one with the highest initial product cost.

We give you the tools to see your profit by vendor. Even if there is only a 1 percent difference, in some cases that can double your net profit. Saving 5 percent on product cost just by eliminating lower profit vendors should be very easy with Produce Magic Software, since you will become very aware of profit percentage differences. That could totally pay for Produce Magic Software several times over in the first year, which is a tremendous return on your investment.

Increase Salesperson Productivity

Salespeople using Produce Magic Software tell us that their productivity increased 4 to 10 times what it was when they did it manually.

We get your people out of the paperwork business and do all the paperwork and tracking for you. There is obviously a lot more to the Produce Industry than just buying and selling produce and/or filling out purchase orders and sales orders.

Salespeople are usually very apprehensive about switching to an automated system like Produce Magic Software. The fact that our orders and purchase orders can be input rapidly with only one finger takes a lot of the fear out of it. In just a couple of minutes, you can learn most of what you need to know to input sales orders. Salespeople are usually “flying” with our system and entering orders totally on their own after a few minutes of training.

That is DEFINITELY not the case with a lot of other software systems. With many systems, the salespeople will never use them because they are too difficult to use and too slow to use while the customer is on the phone! It is critical that the purchase order and sales order information is entered by the salespeople and the buyers, so everyone has access to the information immediately and so it doesn’t need to be input again. In many cases, your purchase orders and sales orders will be similar to others for that vendor or customer.

Default purchase orders and default sales orders can be set up almost exactly the same as entering a new order. Once the default purchase orders and sales orders are set up, the input procedures are MUCH easier and faster.

The default line items and pricing for the vendor or customer are automatically copied to the order. So you just need to input the quantity for each line and verify that the price is correct. If some of the default line items have no quantity for that order, they are deleted automatically when you exit from the line items screen.

It is faster to input orders into Produce Magic Software than to write them on a pad. Seriously. But the big savings area is that once it is input one time, it doesn’t have to be input again and the system links everything together and gives you tremendous information. Produce Magic Software will free up a lot of salespeople’s time that was spent doing things manually before.

Our customers tell us that in many cases, each salesperson’s value increases by at least $2-4000 per month with Produce Magic Software. Our customers also tell us that one of their salespeople could probably do the work of three with Produce Magic Software.

Good salespeople are difficult to find, and you likely want to keep your current salespeople, even if Produce Magic Software cut their workload in half. This is an excellent opportunity to expand your business and open up new product lines, because your salespeople will have a lot more free time and will be happier using Produce Magic Software.

Developing New Product Lines

Your salespeople will definitely have a lot more time after getting on Produce Magic Software. This will let you expand your business.

You have loyal customers that would likely buy other products from you if you offered them. It is obviously critical to fully understand the products you sell. You could get that expertise by spending a couple of days at your supplier’s location and having their Product Managers teach you the basics of product quality, etc.

They will be happy to educate you in their products, because they know it will lead to a lot of sales.

Reduce Overhead Immediately

Produce Magic Software allows Produce Companies to handle a lot more business with fewer employees and provide much better information that can help reduce costs in many other ways also!

You will see that Produce Magic Software reduces employee costs the very first month since it handles a lot of the functions automatically that were previously done manually.

Monthly Savings Outlined

1) By reviewing the profit percentage for each product and vendor, it is simple to eliminate the vendors with the lowest profit percentage. We suspect you can save five percent or more on your products cost by doing this. If you purchase $500,000 in product per month, even if you are only able to save one percent, that is $5000 per month. Saving five percent would save $25,000 per month!

2) By reviewing Inventory Lot Summaries before paying vendors, you will know all the costs and sales prices for each Inventory Lot and profit and loss. If you have product quality problems, this could give you a savings of five to ten percent alone. Some of our customers who handle perishable products feel this saves them ten to fifteen percent on their product cost. If this saved only one percent and you purchased $500,000 per month, that is an additional $5000 per month.

3) Our customers tell us that salesperson productivity is increased by 4 to 10 times with Produce Magic Software. That would increase each salesperson’s value by at least $2000 per month, so $6000 per month (as an example) for three salespeople. That is not a cash savings because you still have the employees on the payroll, but it gives them a lot of time to work on ‘expansion’ projects. With Produce Magic Software, it might be possible for one salesperson to handle the same workload as two or three salespeople not using Produce Magic Software. Good salespeople are difficult to find and if you like your salespeople and you want to increase your volume and add other product lines, this would be an ideal time to do that. Produce Magic Software can easily handle the additional volume with fewer employees than you have now. If you didn’t want to increase your volume, but wanted to lower your overhead, one or more salespeople could be let go, which would provide a considerable cash savings.

4) The people who manually track inventory now can spend most of that time on other activities. You still need to do physical inventories each day, but you would not have the laborious manual Lot tracking that you do now. That would probably save you several thousand dollars per month.

The Low Monthly Lease Payments Are Easy To Cost Justify

It is very easy to justify a small monthly lease payment with the savings Produce Magic Software provides in reduced labor, lost product reduction, and more profitable sales.

We work with several good Leasing Companies that will lease software and/or hardware systems of this nature and we will be happy to help line you up with the right people. One advantage of being in the Produce Industry is that you are constantly buying large amounts of product on credit, so you build up strong lines of credit, which is very attractive to lease companies.

Leases are normally approved in 1-2 days and are similar to getting approved for a credit card. Below $50,000 or so, many lease companies do not even require financials, or tax returns. We are not involved in the lease process but we will refer you to a leasing company, if you’d like.