Procurement Forecasting: Where To Begin

Do You Know Enough About Your Categories To Forecast Well?

PurchTips Edition #389

As we prepare to wind up 2017 and begin 2018, procurement professionals are involved in a rite of the fourth quarter: Procurement forecasting!  Simplified, procurement forecasting answers two questions for each major category of purchased goods and services:  How much will we buy?  How much will we pay?

Before you can produce reliable procurement forecasts, you must know your categories well. Do you?  If you can’t answer the following questions accurately about each category you are responsible for, then you have to learn more about those categories before you can produce a truly reliable procurement forecast.

What drives your purchase volume for this category? An ongoing project?  A project with an imminent completion date?  The operating activity of the organization?  A production plan?  A sales forecast?  Something else?

What is the trajectory of price changes for the category? Stable?  Steadily increasing over years?  Steadily decreasing over years?  Seasonal?  Volatile?

If the pricing of the category is volatile, what factors drive price increases or decreases? Weather?  Producer output decisions?  Surges or declines in demand from other customers?  Price or supply volatility in markets for competing or substitute commodities?  Investor reaction to market pricing trends?  Something else?

If the pricing of the category is seasonal, what month of the year does the pricing typically peak and in what month does it typically bottom out?

What will you do to influence pricing? Strategically source the category?  Renegotiate an existing contract?  Consolidate the supply base?  Something else?

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Copyright 2017. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By Charles Dominick, SPSM, SPSM2, SPSM3