You might be wondering why businesses should put emphasis, or even more emphasis on this area. With regards to Procurement and more specifically, Procurement Transformation, there are key segments in which businesses focus on as far as making improvements is concerned: People and Organization, Process, Tools and Technology, and Metrics. However, inventory management tends to be an area that is often overlooked or underestimated. Though the other segments of a traditional Procurement Transformation are highly evaluated to identify opportunities for spend optimization and process efficiencies, these opportunities can more easily be identified and acted upon within inventory management. Therefore, there should be an added emphasis on this component within a business’ current Procurement function, as well as in a warranted Procurement Transformation. Having a well-established flow of inventory, whether that be raw materials, work in process, or finished goods, that keeps up with the company’s demand will empower them to maintain consistent production and fulfill customer orders in a timely and effective manner.
A business is not much of a business without inventory circulating through its operations. As the business grows, and even for small businesses, it is mandatory that the inventory is managed properly. Some businesses manage inventory manually, and many businesses leverage dedicated software to automate the process. As a business is putting more focus on this portion of their Procurement function, they will be better equipped to understand their demand flow and will be able to better gauge future demand, and do so proactively. While appropriately managing stock levels and circulating inventory, businesses can gain more control over how much they are spending on inventory, and make adjustments to improve the costs of having too much inventory or not enough.
As part of enhancing the business, the Procurement function may assess the cost benefits associated with closely managing inventory across operations. Whether this be by performing periodic inventory counts and manually monitoring stock, or by implementing a specialized inventory management system that actively monitors inbound and outbound product, identifying opportunities to enhance the various inventory levels and effectively manage this portion of the business can lead to significant, and almost immediate cost savings. In the context of direct materials, companies can drastically benefit from understanding their inventory rotation and either using or eliminating the parts that are subject to go obsolete. Keeping a lean inventory inclusive of a buffer will help the company accurately forecast demand and maintain a tight rein on the costs associated with this portion of operations. Ultimately, when companies are identifying options for better managing or reducing costs, it is worth looking into the obvious areas first, such as inventory.