Procurement, Inventory, and Demand Forecasting

PART THREE Procurement, inventory and demand forecasting

Procurement and fourteen supply

Introduction

Procurement and supply (or supply management) is one of the key links in the supply chain and as such can have a significant influence on the overall success of the organization. Ensuring that there are sufficient supplies of raw materials at the right price, of the required quality, in the right place and at the right time is obviously crucial to any manufacturing plant. So important is this process that over the years many organizations have developed large departments to deal with the sheer weight of supplier transactions. Recently, however, many companies have been reducing the number of suppliers they deal with in order to reduce the cost of these transactions.

In addition to supplier reduction programmes, many companies have tried to move away from the traditional adversarial relationship with suppliers and towards a more partnership-based approach. This style of relationship recognizes that both parties need to make a profit to survive but that there may be areas where, through cooperation, real cost may be removed from the supply chain and competitive advantage gained by working together.

Of course, procurement is not just about raw materials. The following may also need to be acquired:

· utilities - gas, water, electricity and telephones

· fuel - diesel, petrol and heating fuel

· capital assets - machinery, vehicles and buildings

· corporate travel and hotels

· stationery

· consultancy

· outsourced services - distribution contracts, I T services, etc

· I T equipment - hardware, software and support

Very large sums of money are involved in the above areas of purchasing, with different emphasis placed on different elements depending on the business of the organization concerned. For a transport company, fuel may represent as much as thirty-five percent of the total operating budget, but for a manufacturing plant the major cost may be in the plant running costs. These costs need to be carefully managed, but the first step is to determine some purchasing objectives.

Managing suppliers is another crucial aspect of procurement. 'How many suppliers should we have?', 'How will we assess their performance?' and 'Should we make or buy this component?' are all key questions that need to be answered if a procurement strategy is to work to the benefit of the business.

Over the last decade many companies have invested in both hardware and software to facilitate the use of e-procurement, which may be defined as: the electronic integration and management of all procurement activities including purchase request, authorization, ordering, delivery and payment between a purchaser and a supplier.

Procurement is a very large subject. The objective in this chapter is only to highlight key areas.