PurchTips - Edition # 116

 

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Purchasing & Inventory Management Hook Up!

By Charles Dominick, SPSM, SPSM2, SPSM3

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

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.





The Latest Purchasing News

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Free Procurement Training & Certification Starter Kit

This Starter Kit gives procurement professionals like you a clear idea on what it will take to become certified. You'll get an excellent feel for what you will need to learn and how long it will take.

Click here to learn more

Included in your free Starter Kit:

  • Access to two lessons from courses that are part of the Senior Professional in Supply Management® Program
  • A Certification & Training Planning Template
  • Case studies
  • A free Basic Membership in the NLPA

Together, these materials will help you decide how well the SPSM® Certification can help you achieve your career goals.

So, what are you waiting for? Begin your pursuit of a more rewarding procurement career – get your Procurement Training & Certification Starter Kit now by signing up for a free NLPA Basic Membership!

If you are already a member of the NLPA, click here to login and visit the "Starter Kit" tab to access these resources.