Maximizing Inventory Efficiency Through Strategic Purchasing

Key Takeaways:

• Inventory control involves the management of products and services across the supply chain, ensuring the right amount of product at the right time.
• Integrating purchasing and inventory control is critical for forward planning and forecasting in today’s economic climate.
• Automated technologies and mobile inventory management systems can help align teams around a single source of truth when making inventory decisions.

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The reality is quality inventory data drives sound supply chain strategy. That’s why inventory control is so imperative for growth and success.

Inventory control involves managing company inventory levels across all parts of the supply chain, from raw goods to the final destination. Without a proper handle on your inventory, your supply chain will be inefficient and break down.

When proper inventory control is in place, companies have the right amount of product at the right time to keep the supply chain moving forward. Real-time inventory data has been linked to numerous positive supply chain outcomes including increased visibility, streamlined processes, and tracking of perishable inventory types.

Essential to this process is purchasing. Sound purchasing management allows companies to buy goods in an efficient manner, limiting costs and increasing profits. By harnessing the power of purchasing, manufacturers, wholesalers, and distributors can achieve better inventory control and optimal stock levels in their organization.

Purchasing’s role in inventory management

For many companies, significant resources are invested in inventory. But when purchasing is not monitored alongside inventory, issues occur. In fact, 44% of Digital Inventory Report respondents cite over or understocking of inventory as a critical business challenge.

Purchasing is about far more than the purchase of goods or services, however. A strategic approach to purchasing involves product research, supplier vetting, and monitoring of the product’s delivery, condition, and quantity.

Planning and forecasting

To begin, purchasing should play an active role in planning and forecasting within the supply chain. Forecasting allows manufacturers to predict demand and supply, as well as research suppliers to gameplan future strategies based on market fluctuations.

This practice is critical because it allows companies to make better inventory purchasing decisions, track demand, and decrease unnecessary costs.

When forecasting inventory opportunities, it’s important to plan for seasonal variations, fluctuating customer demand, and account for shifts in product availability and pricing. While you can’t predict the future, forecasting can help organizations make informed decisions based on real-time data.

Supplier selection

Creating a long-lasting relationship with suppliers helps drive down inventory costs and provides better access to products. That’s why purchasing professionals should prioritize the supplier relationship. This enables increased trust and the ability to build reliable schedules for shipment of product, as well as heightened competitive advantage.

When choosing a supplier, look for experience, shared commitment, transparency, and the ability to grow long-term. This model of trust and longevity with both partners and suppliers is critical to the success of several high-profile companies, including Coca-Cola.

Collaborative partner relationships will result in a consistently quality product with timely delivery to the consumer.

Negotiations and contracting

Even the best supplier relationships will need to be reviewed from time to time. After all, inflation, changing market factors, supply chain issues, and more will all contribute to a need to revisit agreed-upon contracts.

In fact, many of the top new challenges impacting inventory management professionals are due to the new economic environment we live in. More than 80% cited rising input and procurement costs, 78% cited change in demand, and 77% were impacted by shipping and receiving issues.

While these challenges can’t be prevented entirely, proper negotiations and contracting with suppliers can help ease the burden they cause.

Successful negotiations begin with information. A data-driven approach can help inform conversations and review of existing contracts. Purchasing professionals can help pull forecasted volumes, current inventory patterns, market data, future projections, and historic knowledge on spend and supplier product.

Companies should also be prepared to hear multiple alternatives and ideas to reach a solution. This is why forecasting is so important from the beginning. Knowing what your future projected outcomes and needs are will help you see multiple ways to achieve your goal with your contracts.

An inventory management system can further help with contract management and negotiations. Choose a system that streamlines warehouse operations, gives visibility into inventory control, and delivers accurate, live data. A centralized location that acts as a trusted data source will be vital to conversations.

Order placement and monitoring

Order placement is also a critical component of inventory management and order management. Order placement involves the formal agreement of goods and services to be ordered from the supplier.

This process involves research into need identification, potential suppliers, price negotiation, and official purchase orders.

By involving purchasing in the order placement phase, inventory management professionals can ensure the required goods arrive in a timely and cost-efficient manner.

Purchasing’s visibility into inventory levels allows companies to reduce their risk of supply chain disruption by knowing what they need and when. In addition, the placement of orders in a timely, proactive fashion enhances inventory operations across the operation. And more frequent ordering can help drive better negotiations with long-term suppliers, resulting in cost savings.

Ultimately, purchasing understands the role of a good or service from beginning to end. By identifying the product need, understanding the current and future demand, and facilitating timely delivery, purchasing can help streamline and optimize inventory and supply chain operations.

Inventory control techniques

Once you’ve aligned purchasing with overall inventory management, it’s time to look at inventory control, also known as stock control. After all, if inventory isn’t properly monitored, it can impact numerous parts of your operation, from the warehouse floor to the bottom line.

Stock control methods

There are numerous stock control methods to consider based on the types of products you carry, when you want to order products, forecasting, and your ability to store goods.

For instance, first-in-first-out (FIFO) and last-in-first-out (LIFO) place the value on the product. LIFO inventory control focuses on inventory added in last and how it gets out the door first. FIFO emphasizes goods added first to inventory will be the first to sell.

For manufacturers, another option is just-in-time manufacturing, which aligns the order of products with the production schedule. The goal in JIT inventory control is to decrease waste by only keeping necessary goods on site.

Reorder point

Having real-time inventory data will help you optimize inventory ordering and inform purchasing. This information allows you to set par levels and signal the need to reorder when minimum product levels are met.

These levels will vary based on the type of product and ultimately change over time based on supply and demand. Your reorder point is ultimately calculated by the sum of your lead time for products and your safety stock.

Safety stock is used in case of emergencies. For instance, if there is a shipping delay for a needed product, your company would use the safety stock to not disrupt the distribution of your goods or service. Safety stock exists alongside your minimum inventory levels and is essential for determining reorder points.

Cycle counts

Keeping your data up to date requires regular cycle counting. Cycle counting allows you to conduct regular audits of actual inventory to ensure accuracy in your reporting. Unlike spot checking, cycle counting is an ongoing inventory audit.

Ultimately, cycle counting benefits companies through accurate accounting and operational efficiency. As an essential component of inventory control, it verifies stock levels are correct, identifies areas for cost savings, and points out wasted resources.

While companies can implement manual cycle counting, the true power lies in automated cycle counting. For Schwing America, automating cycle counting led to a huge benefit. The company quickly experienced 42% increased picking efficiency and world-class 99.8% picking accuracy.

Integration of purchasing and inventory control

Inventory management continues to be top of mind. 58% of Digital Inventory Report respondents intend to invest in projects focused on implementing better inventory control.

One way to accomplish this goal is through the integration of purchasing and inventory control operations. Using data and forecasting to inform purchasing leads to improved accuracy, increased efficiency, and a reduction in costs.

To properly integrate your company’s purchasing and inventory control processes, start with an inventory control plan. This plan should look at the full life of your product, from purchasing to sale. Utilize purchasing forecasting to help drive strategy for your plan and update it often based on shifting market demands.

This plan should also identify metrics to track in order to determine success. These joint performance metrics will ensure all teams have the same view of success and the necessary data to make strategic decisions.

Another crucial conversation to have between purchasing and inventory control is the balance and benefit of stock on hand. By outlining your key performance metrics and overall goals, these teams can find the right balance between storing stock in the warehouse versus avoiding not having the needed supplies on hand.

Once you have your plan in place, it’s time to invest in an inventory management system. A mobile inventory management system will allow all parties to access data anytime, anywhere.

Look for an automated system that includes:

• Auto replenishment features
• Safety stock calculations
• Integration into business-critical systems
• Wireless barcode integration
• Data metrics
• Multiple user support
• Tracking and forecasting options

The goal of an inventory management system is to align to a single source of truth that both inventory control and purchasing can use to make strategic decisions. By streamlining your data, you can see total inventory costs, product performance, budget, and more.

The Importance of Efficient Inventory Control

Inventory is the lifeblood of an organization. It also can cause numerous headaches and be a drain on resources and staff. By aligning purchasing with inventory management operations, companies can achieve a holistic look at their supply chain and its future opportunities.

Purchasing gives awareness into inventory operations from the beginning of the product life cycle and can inform upcoming decisions based on forecasting and planning.

Successful companies should look to integrate their purchasing and inventory control operations through solid planning and the implementation of a mobile inventory management system to streamline efforts across the organization. Businesses that fail to automate inventory processes risk falling behind competitors that have already embraced fully digital strategies.