procurement role in forecasting, inventory management and lean manufacturing sample

Consultancy Negotiation Skills Development Recruitment Interim Management Asia Sourcing

© PMMS Consulting Group 2008 All Rights Reserved

Procurement’s Role in Forecasting, Inventory Management and Lean Manufacturing

Consultancy Negotiation Skills Development Recruitment Interim Management Asia Sourcing© PMMS Consulting Group 2008 All Rights Reserved 2 www.pmms-group.com

+44 (0)1403 249600

Contact Details

• For more information on how to receive this full training course or other PMMS portfolio offerings, contact:

Julie Brignac, Principal+1 305 890 9078

[email protected]


+44 (0)1403 249600

• Describe the roles and responsibilities of Procurement in the forecasting, inventory management, and lean processes

• Identify the key forecasting principles and the role Procurement plays in a successful forecasting model

• Articulate the vital link between forecasting and inventory management, and how Procurement contributes to a successful process

• Define the elements required to execute a successful interface between Procurement, planning and manufacturing

Objectives


+44 (0)1403 249600

Tactical Buying & Strategic ProcurementWhat’s the difference?

• Tactical Buying– Driven by

specifications/requisitions

– Often buying a solution – Buying what the market

offers and sells– A function– Not part of strategic

planning– Contract Managers

• Strategic Sourcing– Driven by business needs– Solving a business need– Influencing and developing

the market to meet the needs

– A cross-functional business process

– Part of strategic planning– Market & Relationship

managers


+44 (0)1403 249600

Role Definitions

PROCUREMENT

INVENTORY MANAGEMENT

FORECASTING

LEAN MANUFACTURING

• Strategic and tactical purchasing• Influence over all areas of

expenditure• Involvement in corporate strategy

and stakeholder consensus on Procurement strategy

• Cost, quality, availability and sustainable performance measurement

• Prediction of some future event or condition to reduce risk

• Requires data and development of some preliminary hypotheses

• Use the past to tell a good story for the future

• Provide the business with scenarios for proper planning

• Balance the needs of manufacturing by providing parts just in time

• Understand financial impact of inventory balances and mitigate additional cost and risk of obsolete inventory

• Coordinate with Procurement and manufacturing on appropriate buying levels

• Meet customer demands by providing goods at highest quality and on time delivery

• Manufacture goods in most productive timeframe

• Eliminate waste in operations to improve throughput


+44 (0)1403 249600

• An easy life - minimum processing

• Choice

• User friendly transactions

• Reliable transactions

• A fast service

• Accountability

• The absence of Procurement presence

– no overt enforcement

Challenges:Internal customers will seek


+44 (0)1403 249600

There are five basic principles of forecasting that Procurement, inventory managers, and manufacturing personnel must remember

• Forecasts are always wrong

• Forecasts must be measured and improved

• Forecasts are more accurate for groups of products, rather than for individual components

• Forecasts are more accurate closer in

• Low-volume or erratic forecasts are most difficult

Five Principles of Forecasting


+44 (0)1403 249600

• Many companies fail to link vital operational functions to their overall business strategy– Resulting in siloed functions and redundant activities

• For Procurement, primary strategic challenges are– Linking the Procurement strategy tightly to the business

objectives– Developing strategic relationships with suppliers, but

ensuring flexibility in the relationship– Acting as the focal point for the operational process– Defining Procurement as focusing on four key elements

Availability QualityCost Sustainability

Linking to the Business Strategy


+44 (0)1403 249600

• Supplier Alliances– Traditional long-term buyer/seller relationships– Cross company supplier partnering

• On Site Supplier Programs and Representatives– Facilitates constant communication with key suppliers for high

volume or critical parts– Part management by supplier representative, not company rep

• Kanban/JIT Philosophy Implementation – Positive inventory impact– Frequent repetitive orders– Multiple deliveries just prior to floor use

Supplier Involvement


+44 (0)1403 249600

JIT / Kanban / Pull System Benefits

• Prevents manufacturing overproduction of end product

• Provides visual controls so processes are managed efficiently

• Improvements in all processes are imminent

• Reduces lead times

• Conveys production instructions between work centers

• Eliminates waste

• Reduces or eliminates some parts in inventory

• Best when material is supplier owned until placed into WIP (work in progress on production floor)


+44 (0)1403 249600

• Business treats the forecast as reality – not a potential scenario

• Procurement establishes supplier alliances that drive cost reduction through volume, but does not confer with planning

• Procurement does not consider the forecast when negotiating volume commitments

• Manufacturing does not consistently evaluate the use of lean tools in its processes

• Inventory managers do not consult purchasing or manufacturing when planning inventory levels

Potential Failure Modes


+44 (0)1403 249600

• BusinessDictionary.com website. www.businessdictionary.com: 2008.

• Cavinato, Joseph L., Flynn, Anna E., Kauffman, Ralph G., The Supply Management Handbook. McGraw-Hill, Seventh Edition: 2006.

• Lean Procurement™. Website of Consumers Interstate Corporation. www.leanProcurement.com: 2008.

Resources