As a procurement director, I am always looking for ways to reduce operating capital and improve the efficiency of our procurement processes. One particular success story that stands out in my mind is how our operative buyers were able to reduce our operating capital through active order management.

Several years ago, we had a problem with our inventory management system. We were ordering too many products and our inventory was becoming bloated. As a result, we were tying up a significant amount of capital in excess inventory, which was impacting our cash flow and bottom line.

Our operative buyers were tasked with finding a solution to this problem. They started by analyzing our ordering patterns and our inventory levels.  A key tool was the ABC classification system, a method of categorizing inventory items based on their importance to the business. This system divides inventory into three categories:

• Category A: This category comprises a small percentage of inventory items that account for a large portion of the total value. These high-value items require regular monitoring and tight control.
• Category B: These items fall between A and C in terms of their value and frequency of use. They represent a moderate portion of the inventory and require a balanced approach in terms of ordering and monitoring.
• Category C: This category includes a large number of items that account for a small portion of the total value. These low-cost items are important for the production process but less critical in terms of financial impact.

The ABC classification system helped us prioritize our inventory management efforts, focusing more resources and tighter controls on the most valuable items (Category A), while managing Categories B and C with proportionate effort and cost.

Just by focusing on A items the buyers, got an understanding of demand patterns and could improve forecast accuracy. From the improved forecasts, the operative buyers started working closely with our suppliers to further improve our order management processes (optimizing order quantities and stock positions) for Category A and in some cases Category B. 

For Category C, they established minimum order quantities and well defined lead times for each product, which helped us reduce our ordering frequency.

Finally, our operative buyer team implemented a new inventory management system that allowed us to track our inventory levels in real-time. This helped us identify potential stockouts and adjust our ordering patterns accordingly.

Thanks to the hard work and dedication of our operative buyers, we were able to reduce operating capital by over 20% in a very short period of time and, of course corresponding improvement in cash flow, which allowed us to invest more resources into other areas of the business.

This success story is a testament to the importance of active order management, reducing operating costs and improving efficiency in the procurement process. By analyzing our ordering patterns, working closely with suppliers, and implementing a new inventory management system, our operative buyers were able to achieve significant cost savings and improve our bottom line.

In conclusion, this story serves as a reminder of the value that operative buyers bring to the procurement process. Through their dedication and hard work, they were able to reduce operating capital and improve our cash flow. Their efforts demonstrate the importance of active order management and the role that it plays in driving success in the procurement industry.

Learn more about the operative buyer’s processes in the basic level course Operative Procurement Processes. The course introduce how Arjan van Weele define operative and tactical procurement, what a buyer buy and 8 important processes which manage day to day work for the operative buyer.

Reduce operating capital by improving forecast quality

Improving forecasting quality in a supply chain is crucial for optimizing operations, reducing costs, and enhancing customer satisfaction. Here are several strategies that can be implemented to enhance forecasting accuracy:

Leverage Advanced Analytics and Machine Learning

Utilize sophisticated analytical tools and machine learning algorithms to analyze historical sales data, market trends, and consumer behavior patterns. These tools can identify hidden patterns and correlations that human analysts might miss.

Integrate Real-Time Data

Incorporate real-time data into your forecasting models. This includes current sales data, market trends, and even external factors like weather patterns or economic indicators that might affect demand.

Improve Data Quality

Ensure that the data used for forecasting is accurate, complete, and timely. Poor data quality can significantly impair the accuracy of forecasts.

Collaborative Planning and Information Sharing

Engage in collaborative planning with suppliers, distributors, and retailers. Sharing information across the supply chain can provide a more comprehensive view of the demand picture.

Demand Sensing

Adopt demand sensing techniques, which use machine learning and real-time data to detect and respond to real-time demand signals, providing a more accurate and immediate forecast.

Segmentation of Products and Markets

Segment your products and markets to tailor forecasting methods to specific categories. Different products and markets may have different demand patterns and require different forecasting approaches.

Regular Review and Adjustment

Regularly review and adjust forecasts based on actual sales performance and market feedback. Continual adjustment helps in refining the forecasting models and methods.

Training and Development

Invest in training for staff involved in the forecasting process. Understanding the latest tools, techniques, and market trends is crucial for making informed forecasting decisions.

Scenario Planning

Use scenario planning to anticipate how different conditions (such as changes in consumer behavior, new market trends, or supply disruptions) might impact demand.

Feedback Loops and Continuous Improvement

Implement feedback loops to learn from forecasting errors and successes. Analyzing why certain forecasts were accurate or not can provide insights for continuous improvement.

By applying these strategies, supply chain managers can significantly enhance the quality of their forecasts, leading to better inventory management, more efficient operations, improved responsiveness to market changes and reduce operating capital.

Note: Illustration to the blogpost “Reduce operating capital and improve the efficiency of our procurement processes” was created witH DALL-E on April 11, 2023. 

At Utbildning Inköp you can learn in Swedish about LHTS’ courses.