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Purchasing & Inventory Management Hook Up!


PurchTips - Edition # 116

By Charles Dominick, SPSM

 

The following article will provide you with some quick purchasing and inventory management tips. To learn more about inventory management, consider the online course "Profitable Inventory Management and Control." Learn more by clicking here.


Will Your Role Include Inventory Management?

A big trend is for organizations to blend their operational functions under the umbrella known as supply chain management. Often, the first two functions to merge are purchasing and inventory management.

So, as a purchasing professional, you must understand inventory management principles to remain valuable.

First, you must know how much inventory to have on hand to ensure continuity of supply in the event of an uncharacteristic increase in either demand and/or lead time. This quantity of inventory is called the safety stock. There is no universally used formula for determining safety stock quantity, but PurchTips Edition 86 suggested a risk averse calculation.

Second, you must know when to reorder materials for inventory. Generally, this point in time is determined when the quantity of materials in stock decreases to a certain level, called the reorder point. The reorder point is determined by the formula:

ROP = SSQ + (QUD x ALT)

Where,

ROP = Reorder Point

SSQ = Safety Stock Quantity

QUD = Quantity Used Daily

ALT = Average Lead Time (in days)

Third, you must know how much to order. A complex mathematical equation determines the Economic Order Quantity, or EOQ. The equation recognizes the tug of war between acquisition costs and inventory carrying costs: when you order bigger quantities less frequently, your aggregate acquisition costs are low but your inventory costs are high due to higher inventory levels. Conversely, when you order smaller quantities more often, your inventory costs are low but your acquisition costs are higher because you are expending more resources on ordering. The EOQ is the order quantity that minimizes the sum of these two costs.

Fortunately, inventory management systems calculate the EOQ for you. But if you want to see the EOQ equation, check out my blog post entitled Purchasing and Inventory Management

(keep reading for a FREE Offer)

Spotlight On Professional Development Opportunities






Don't miss the most exciting procurement event of 2013!

The 2013 Next Level Purchasing Association (NLPA) Conference, taking place September 12-13, 2013 in Pittsburgh, PA will be a high-quality, educational event like no other! Packed with educational workshops and three keynote speeches (including Andrew Bartolini, formerly of Aberdeen Research and Chris Provines, formerly of Johnson & Johnson), this event will be nothing short of amazing. You'll also have an opportunity to network with other procurement professionals at a welcome reception and meet with solution providers in the conference exhibit area. You can download a copy of the conference brochure including workshop descriptions by completing the form below.



How can you get a ton of valuable educational material for FREE? Just submit your contact information below. You'll immediately get a copy of the annual Purchasing & Supply Management Career & Skills Report and access to the online mini-course "Managing Supplier Performance!" Plus, you'll get expert purchasing articles and tips by email every two weeks!

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follow the instructions at
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