Top 4 Challenges in Warehousing and Distribution for SMBs

Running a warehouse feels like juggling flaming torches while walking a tightrope. One wrong move and everything comes crashing down. You know this struggle intimately if you're a finance leader or warehouse manager at a small to medium-sized business. Between rising customer expectations, tighter margins, and complex inventory management, today's warehousing and distribution landscape is more challenging than ever.

The good news? Microsoft Dynamics 365 Business Central offers robust solutions designed to tackle these pain points. Let's dive into the four most pressing challenges facing SMBs today and explore how Business Central's warehousing and distribution features can transform your operations.

Challenge #1: Inventory Visibility and Control

Picture this: A customer calls asking about product availability, and your team scrambles through spreadsheets, physical counts, and multiple systems just to give a "maybe" answer. Sound familiar? Poor inventory visibility is the silent profit killer that haunts SMB warehouses.

Without real-time inventory tracking, businesses face stockouts, leading to lost sales and frustrated customers. Overstock situations tie up valuable working capital. Accurate financial reporting affects strategic decisions, and manual processes consume precious staff hours.

Item Tracking and Lot Management

Business Central's Item Tracking and Lot Management features provide end-to-end visibility across your entire inventory lifecycle. Here's what sets it apart:

• Real-Time Inventory Updates: Every transaction, whether receiving, picking, shipping, or transferring, instantly updates inventory levels across all locations.

• Multi-Location Management: Track inventory across warehouses, retail locations, and consignment locations with unified reporting.

• Advanced Lot and Serial Number Tracking is critical for businesses dealing with expiration dates, recalls, or quality control requirements.

• Bin Management System: Organize inventory to specific warehouse locations, making picking and receiving exponentially more efficient.

Item Availability

The Item Availability window gives you instant access to on-hand quantities, committed stock, and projected availability dates; no more guesswork or embarrassing customer callbacks.

For finance leaders, this translates to accurate cost of goods sold calculations, better cash flow management, and the ability to make data-driven purchasing decisions that optimize working capital.

Challenge #2: Order Fulfilment Bottlenecks

Your warehouse team is working harder than ever, but orders are still going out late, incomplete, or to the wrong addresses. Manual order processing creates a domino effect of inefficiencies that ripple through your entire operation. Common fulfilment challenges include:

• Order picking errors lead to returns and customer dissatisfaction.

• Inefficient pick paths waste time and labour.

• Difficulty prioritizing orders based on customer importance or urgency.

• Lack of integration between sales, warehouse, and shipping systems.

The Warehouse Management System (WMS) in Business Central transforms chaotic order fulfilment into a streamlined operation:

Directed Pick and Put-Away

With Directed Pick and Put-away, system-generated pick documents guide staff along optimized routes, while suggested bin locations are based on item velocity and warehouse layout. This smart sequencing not only reduces travel time but also improves accuracy across the warehouse.

Advanced Warehouse Configurations

Business Central supports complex structures with zones, bins, and item categories, making it easier to manage large or specialized operations. High-velocity items can be routed directly through cross-docking, while flexible workflows like receive-to-stock or pick-to-ship can be tailored to match your business's operations.

Sales Order Management

Finally, seamless Integration with Sales Order Management ensures warehouse documents are automatically generated from sales orders, reducing delays and manual effort. Rush orders or VIP customers can be prioritized easily, while real-time status updates keep customer service teams informed, helping them set the right expectations and build stronger customer relationships.

The Warehouse Shipment functionality consolidates multiple orders into efficient shipments, while the Pick Worksheet helps warehouse managers optimize daily operations by grouping similar items or destinations.

Challenge #3: Financial Visibility and Cost Control

Many SMB owners and finance leaders operate with limited visibility into their warehousing costs. Without accurate data, it's impossible to identify improvement opportunities or make informed decisions about warehouse investments.

Common financial blind spots include actual cost per shipment or order, inventory carrying costs and obsolescence, labour productivity and efficiency metrics, and the impact of warehouse operations on overall profitability.

Business Central's tight integration between the warehouse and financial modules ensures that every warehouse transaction immediately impacts your financial statements:

• Automatic journal entries for inventory movements.

• Period-end Closing processes ensure accurate financial reporting.

• Budget vs. Actual reports help track warehouse performance against financial targets.

Real-time Cost Tracking

With Real-Time Cost Tracking, businesses gain a clear and accurate view of their inventory expenses. Flexible item costing methods—such as FIFO, LIFO, Average, or Standard—ensure valuations reflect reality and support better financial reporting. Landed cost calculations factor in freight, duties, and handling charges, so finance leaders understand the actual cost of goods. Meanwhile, cost analysis reports break down warehouse expenses by category and time period, making it easier to spot inefficiencies and control spending.

Advanced Analytics

Advanced Analytics and Business Intelligence tools take this visibility further. With Power BI integration, executives can access dashboards that highlight warehouse KPIs at a glance. Performance reports track critical metrics like orders per hour, accuracy rates, and shipment cost, providing operational and financial insights. Cash flow projections also become more precise, as they consider inventory levels and purchase commitments, giving leaders the confidence to plan with clarity.

Inventory Optimization

Finally, Inventory Optimization helps organizations balance service levels with cost efficiency. ABC analysis directs management attention to high-value items that need the most oversight, while slow-moving inventory reports highlight potential obsolescence risks before they become costly write-offs. At the same time, stockout analysis quantifies shortages' financial impact, helping warehouse and finance teams justify more innovative replenishment strategies.

Challenge #4: Supply Chain Disruptions and Vendor Management

Recent global events have shown how fragile supply chains can be. SMBs often lack the leverage and systems needed to effectively manage supplier relationships, leading to stockouts, quality issues, and inflated costs.

Key supplier management challenges include limited visibility into supplier performance, difficulty managing multiple suppliers for the same items, lack of automated reordering processes, and poor communication during supply disruptions.

Advanced Purchase Order Management

With Advanced Purchase Order Management in Business Central, procurement becomes more strategic and cost-effective. Blanket Purchase Orders allow companies to secure negotiated pricing and delivery schedules with suppliers, helping stabilize costs over time. Drop shipments reduce the need to hold excess stock by shipping goods directly from the supplier to the customer, while special orders can be linked directly to customer requirements, ensuring flexibility without burdening the warehouse.

Supplier Performance Tracking

The Supplier Performance Tracking in Business Central gives finance and operations leaders a clearer view of supplier reliability. Purchase analysis reports highlight delivery performance, quality metrics, and cost trends, while vendor statistics provide a straightforward way to evaluate which suppliers consistently meet your standards. When combined with vendor ratings, businesses can make more informed sourcing decisions supporting operational efficiency and long-term partnerships.

Automated Replenishment

Automated Replenishment streamlines purchasing by eliminating the guesswork about what to buy and when. Requisition worksheets suggest purchases based on reorder points, safety stock, and lead times, while the planning worksheet uses advanced algorithms to optimize order timing and quantities. Item substitution features also make managing supplier changes or product discontinuations easier without disrupting customer commitments.

Supply Chain Visibility

Finally, Supply Chain Visibility features such as purchase order status tracking and expected receipt dates give teams real-time insight into inbound inventory. This allows businesses to proactively communicate with customers about potential delays, strengthen trust, and keep service levels high.

The warehousing and distribution challenges facing SMBs today are real and growing, but not insurmountable.

Microsoft Dynamics 365 Business Central provides the tools, integration, and visibility needed to transform your warehouse from a cost center into a competitive advantage.

Whether you're struggling with inventory accuracy, order fulfilment speed, labour costs, supplier management, or financial visibility, Business Central's comprehensive warehousing features can help you regain control and drive growth.

Ready to see how Business Central can transform your warehouse operations? Contact our team today for a personalized demonstration tailored to your challenges and requirements.