Procurement: finding the right method

Inventory management is a daily challenge for many companies. It completes the purchasing process and defines the company’s supply chain. What’s more, proper inventory planningensures the company’slong-term viability. In fact, it has a direct impact on the company’s cash flow management. However, it’s not always easy to decide which method to use. How do you determine the best procurement method?

Avoid overstocking

Each company needs its own method of inventory management, as their needs may differ. A method that works for one is not necessarily effective for another. In fact, in addition to the relatively different quantities involved, available cash may also force a company to change its supply management method.

All extreme situations should be avoided, starting with overstocking. A large quantity of dormant products is not a good thing for a company’s financial health. In fact, you need to keep an eye on both storage capacity and storage costs, at the risk of generating additional costs. The risks are many: selling at a loss to clear stock, obsolescence of goods, finding new storage space or committing resources to guarantee the safety of products and items in stock.

The best way to manage your procurement is to put in place a good purchasing management system.

Plan minimum stock levels

If overstocking is not a good thing in a company, stock-outs are even worse. It’s an image risk for the company, which can lose legitimacy with its customers. Good supply management means anticipating these scenarios, which mean you’re not in a position to sell. It means taking the risk of driving potential customers away to your competitors, where they’ll find what you can’t sell them.

If you can’t respond to customer orders, the most dissatisfied customers will damage your reputation, especially if they’ve already bought your product. However, this problem can create a snowball effect and lead to the loss of customers. It can also make it more difficult to acquire new customers, especially if your e-reputation is suffering from the effects of your initial mismanagement.

That’s why it’s so important to implement good purchasing management within your company. Very often, stock movement failures are caused by the disorganization of a company’s entire production chain.

Adopt a point-of-order method

Known as “just-in-time” (JIT), this procurement method involves buying a fixed quantity over a variable period. To determine the order date, the resource assigned to order management (supplier, buyer, purchasing manager) relies on a critical stock threshold. When this threshold is reached, he must place an order.

The tricky part is determining whether this threshold is sufficient to supply the company until the next shipment arrives. In this case, you need to take into account the replenishment lead time between the order being placed and the delivery date.

• This management method is highly effective if the company sells or processes stored goods on an irregular basis. It is also ideal for dealing with busy periods. In addition, identical order quantities reduce shipping costs, even if the shipping method is always variable.
• With the JIT method, the company can place orders at any time, ensuring real-time inventory management. However, the problem arises when the supplier is unable to fulfill the order. Its administration requires meticulous tracking, often using a chronograph. In addition, the company must always keep a safety stock, which, depending on volume, represents a financial value that not all companies can afford.

Choose calendar replenishment

Unlike the JIT method, the calendar method is more rigid. The company needs to place precise orders on a fixed date. It is often chosen when the company signs a contract with its supplier, as in the case of raw materials. As a result, delivery dates are scheduled months in advance. The supply planning process facilitates company management and flows. However, it is not suitable for an organization’s exceptional purchasing processes.

This method requires less time and expense. The company can make savings, especially if goods are ordered in large quantities. But it is above all at the organizational level that it is most advantageous. Suppliers know the delivery date in advance, and can prepare to meet it. On the other hand, depending on the economic context, this forecasting method is not to be preferred.

With Weproc, you don’t have to choose your supply management method. Plan your supplies with peace of mind, thanks to innovative, collaborative purchasing management software.

Want to learn more about our procurement management software Weproc? Contact us or request your free 15-minutes demo below!

Team Weproc

Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.