How to Mitigate Food and Beverage Industry Costs with Ease

Entering the post-COVID-19-era requires us to learn new habits, rethink old ways, and adjust to a lifestyle different than years prior – especially in the business landscape. No matter your place within the supply chain, you can feel the pandemic’s rippling effects on costs, imports, and overall business profitability.

Zooming into the food and beverage industry, costs and taxes are skyrocketing as goods move from production to consumer. These increases tighten margins and make it more and more difficult to satisfy consumer’s needs and standards while still maintaining a profitable business in the industry. In an effort to mitigate these losses, companies have been passing these higher input costs to consumers by increasing the ticket price.

Though this may be fiscally savvy, smaller food and beverage companies may not be able to maintain a competitive edge while growing their customer base using this strategy. According to Mazars USA industry outlook, companies’ top concerns include the need to increase sales without sacrificing customer profitability (https://www.fooddive.com/news/rising-costs-a-top-concern-of-food-and-beverage-leaders-survey-finds/603268/). So how can you find the right balance between customer satisfaction and calculated business decisions?

Utilizing Order Time’s automated inventory management system gives you the insights you need to balance the ebbs and flows of the ever-changing industry. Understand how your inventory is fluctuating, price adjustments to compensate, and track the entire production process all from our cloud-based system. Here are just a few of our many tools and integrations to help the food and beverage industry find that perfect balance.

Inventory Primer

As input costs and taxes increase in your business, it is crucial to have an accurate understanding of where your current inventory lies, if and how it needs to grow, and how to plan for future business. Order Time’s vast assortment of inventory tools give you the control you need to make smart business decisions, locate inventory at any time anywhere, and streamline the workflow.

Our inventory primer is an essential tool used to value inventory to protect against major issues down the line that impact the P&L, balance sheet, and taxes. These are intertwined, each having a determining factor in cost of sales and profits with an inverse relationship. Say after valuation you find you have a low inventory. This generates a higher cost of sales, leading to a lower profit for your business. The opposite would occur if you had a higher inventory valuation. 

The industry rule of thumb is that inventory should be valued at the lower of the cost and the market value. Before diving into inventory valuation, be sure to understand the costs included that drive your bottom line. Your cost of inventory is the sum of purchasing the inventory itself as well as all the fees to make it available for sale, such as duty, freight, overhead, and more.  

It is crucial to note that there are three inventory valuation methods you can employ to ensure you can have an accurate grasp of your standings. The most used method is FIFO. FIFO, or first-in-first-out, assumes that inventory is sold in the order it is manufactured, representing the actual flow of goods in the business. On the other hand, LIFO, or last-in-first-out, assumes the opposite of FIFO – the most recently manufactured goods are sold first. Using weighted average cost, or WAC, inventory and cost of goods sold are based on the average cost of all purchased items within a period. 

How do you know which valuation method is right for your business? During these times of rising costs, FIFO would result in the highest inventory valuation and gross profit. Being the exact opposite, LIFO would determine higher valuation and profit as costs fall. WAC estimates FIFO and may also be used if your business’ inventory does not include a lot of variation. 

Inventory Valuation and Ledgers

As we mentioned, inventory valuation is the first step in finding the balance between mitigating financial losses while simultaneously satisfying and growing your customer base.  Once you gain an understanding of your food and beverage business’ standings, the challenging part is transforming the data into actionable opportunities. One of Order Time’s biggest benefits to your business is its vast assortment of reporting capabilities to assist in this process. 

Our inventory status, valuation, and velocity reports are here to guide in making better business decisions down the line without the headache of time consuming and error-prone manual methods. Using historical sales data and trend forecasting, Order Time can give you the details needed for success. We use Tabular reports to give a detailed rundown of your data, Summary reports for stand-alone details and a business overview, and Pivot reports that processing counts, averages, and sums. Be sure to watch our Webinar for additional details. 

For an insightful view on your inventory value and movement, our Ledger Reports are a great asset to your business. View all item transactions on a quarterly basis, receivers adding inventory value, and monitor ship docs as they remove inventory. You can automatically drill down your data on an individual SKU level, monitor all sales, and track changes as business flows within one easy-to-use platform. For more information and a tutorial on ledger reports and valuation reports, watch this Webinar.

Pricing and Price Levels

Rising prices throughout the supply chain found their way to customers as the cost in inputs, imports, and transportation reached all-time highs. While balancing these increases can seem like a daunting task, Order Time can assist in establishing and tracking all markups and discounts throughout your business, including company, item, and customer price levels. 

Company price levels are applied to all items and customers. Company Wide price levels apply a specific discount price once all other price levels have been applied to a good. If purchasing internationally or looking to keep prices in line with local markets, setting a Currency Price allows you to apply a discount or markup to individual items purchased in a different currency. For increased flexibility, you can set a Customer Item by Percentage price level to give a specific customer a percentage-based markup or markdown.

Item price levels can be applied to items within your inventory, such as item markups and volume discounts by price. Applying an Item Markup adds a percentage to the cost of specific goods, while a Volume Discount by price is applied to a subset of an item. Volume discounts specify quantity minimum and maximums to discount all items that fall within the range. 

Lastly, price levels may be assigned to customers, known as customer price levels. Customer Discounts and Markups give a specific customer a reduced price or markup percentage to the price after all item level price levels are assigned. Customer Item Price gives you more flexibility to set a specific price for each item for a particular customer. To give a percentage discount per item on a group basis, use the Customer Item Group Discount price level. If you are looking to bundle many customer-specific price levels into a singular applicable price level, the Customer Pricing Group price level can be used. Customer Stacked Percentages are used to reach a final price by combining multiple price levels such as combined discounts. 

For additional resources, we recommend reading these articles on types of price levels, adding them to your business, or watch our Webinar on price levels and discounts.