Relationship between procurement assessment indicators and inventory

In procurement, we often find a "strange" phenomenon: the higher the inventory level, the higher the frequency of material shortage! That is, what the production department often says when it complained about purchasing and supply departments: it should not come, it should not come!

Why is this strange phenomenon? Under normal circumstances, to meet the needs of production and supply, especially in consideration of fluctuations in customer order requirements and instability of supplier raw material supply, the simplest way is to increase security and buffer inventory to solve the shortage problem, but why is the result counterproductive?

Summary of various lessons learned found that this phenomenon is mainly related to the following two aspects: the rationality of the KPI of the procurement personnel and the psychological problem of the company's financial payment.

Generally, one of the major evaluation indicators for procurement is the number of material shortages, especially for enterprises that are not very demanding on inventory turnover, the evaluation of procurement usually refers to the number of times or the loss caused by the shutdown of the production line due to the shortage of purchased materials. Driven by such assessment indicators, purchasers put almost all their concerns on purchasing goods, because as long as there is no shortage of materials, they have no problem! Therefore, the timely delivery of suppliers has become the focus of their daily work.

The procurement department has neglected a key factor, and the financial payment pressure will become greater and greater. When the financial cash flow is difficult, the payment cannot be paid, and the supplier's enthusiasm for delivery will be compromised, A long time is naturally affected. As a result, suppliers don't want to give you the items they want to purchase, even if they have them. As for those suppliers that have no way, they have to rely on you to survive. Due to the financial pressure, it can only be unable to cope with delivery. This will lead to a vicious circle: on the one hand, there is a large backlog of inventory in the warehouse, and on the other hand, raw materials are not available or cannot be obtained in a timely manner.

This phenomenon is particularly evident in the planning of MRP (material demand plan): the customer's order is modified, such as the customer's request to push the original finished product delivery plan for delivery, or even cancel delivery, according to the MRP logic, after re-running the MRP, the system will naturally recommend that the internal production time and the supplier's raw material delivery time be pushed back or canceled. In this case, if there is no suitable monitoring tool, the purchaser generally does not execute the MRP push or cancel the delivery suggestions, the purpose is to self-protect. If you find this problem, when you ask them why, they will often find a lot of reasons to block you. The most obvious excuses are as follows: the planned time has exceeded the time specified in the contract; the supplier does not execute the plan; the plan changes again; and the transportation process and customs clearance issues.

After careful consideration, we will find that most of the statements made by purchasers are not true, and they are almost all excuses. The reason behind this is that the so-called "security psychology" is playing a strange role. In fact, this is caused by the irrationality of assessment indicators. To some extent, we can understand this mentality. Who don't want to protect themselves? The inventory is high, and no one knows it in a short time. Once the production line is shut down, all the people in the company will know about the pressure of purchasers.

From the perspective of inventory control, this is absolutely unacceptable, and inventory control should be dominated by prevention. Once the fact of high inventory is achieved, everything is too late, for two reasons:

1. Once a high inventory is formed, the possibility of finding the cause is almost zero.

2. Once a high inventory is formed, it is very difficult to reduce it in a short period of time, because the inventory is "inertial.

Another reason for "not coming, not coming" is related to the company's finance and the company's culture. A notable feature of the company's finance is that suppliers do not pay when their payment is due and the money is clear. It is estimated that it is also related to the security psychology of financial personnel. We will not discuss it too much here, but the problem is that the security psychology of finance itself has artificially destroyed the game rules with suppliers, the result is that the purchasers are at a loss and eventually lose trust in the suppliers, forming the same vicious circle!

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