Five Mistakes Purchasing Managers Make

November 4, 2019 in Inventory

I have worked with many clients over the course of 17+ years of consulting work and 50+ supply chain projects. There are many things purchasing managers do right (hence they still hold their positions). However, there are some mistakes which are more common and I am summarizing below into five points:

1. Inaccurate lead time.

Maintaining accurate lead time is very important yet many organizations tend to ignore that. For example, if a vendor quotes a lead time of 4 weeks (to be conservative for them), yet they consistently deliver in 3 weeks. Then the purchasing manager should discuss with vendor and check if they can agree to lead time in 3 weeks with the understanding that sometimes they may be late. Lead time of 3 weeks versus 4 weeks could save up to 1/3 inventory without sacrificing the customer service level. One could carry some extra safety stock to cover the uncertainty of lead time.

2. Inertia Minimum Order Quantity (MOQ).

MOQ is normally negotiated based on the initial customer demand forecast the organization made. The sourcing personnel or purchasing manager then negotiates an MOQ based on the demand and the price they are willing to pay. However, over the course of the product life cycle, the demand could have dropped down or not stay as initial forecasted, it then may make sense to revisit the MOQ with your vendors so that you do not stuck with high inventory. Likewise, if the actual demand is higher, you may want to increase the MOQ to get a better price from the vendor. A 3-6 month review of such MOQ policy is recommended.

3. Buying independently for each warehouse.

This may due to the resource assignment. For example, management tends to assign buyers based on their location. Hence buyers only buy for their respective warehouse. Doing this loses the aggregate purchasing power of all warehouses together. In the meantime, this also cause each warehouse to over stock due to individual item MOQ requirement.

4. Not able to fully take advantage of vendor temporary price discount.

From time to time, vendors cut prices temporary in order to move their inventory. Many buyers do not act upon that. Other buy a little extra to be conservative, yet some others buy too much. There is algorithm available in this area to optimize the investment buy.

5. Lack of demand planning and procurement planning process and supporting tools.

This is more often happening in distributing and wholesale industry where the buyers buy based on historical demand. Buying based on most historical demand (1 month average, 3-month average, etc.) misses the inherent seasonality and can cause overbuy or under buy easily. With state-of-art technology like Oracle Demantra or JDA or SAP, the forecast accuracy can be improved, thus reducing inventory yet achieving higher customer service level.