Updated: Aug 17
Purchase Planning is more than just placing an order. Purchase Planning or Procurement Planning is the process of identifying the requirement of stock in a given timeframe, deciding on a suitable supplier and placing an order for the right amount to fulfill demand efficiently.
Purchasing is usually treated as a reactive process. With the common Just In Time approach, business only purchases stock as and when needed. However, this is not sustainable and can actually be costing your business a lot more than you think. A small delay by suppliers, might offset future orders and reduce sales and revenue, while disappointing your customers.
A proactive approach to purchasing is essential in today’s volatile and hyper competitive market. Purchase Planning with the help of AI based Supply Chain Management Softwares will make your supply chain agile and be prepared without overstocking.
CHALLENGES OF MANUAL PURCHASE PLANNING
Not knowing when to order
Purchasing when done using guesswork, can severely limit your sales potential.
Purchasing too late can mean you have already lost your opportunity to sell and you have excess inventory that drives costs in your business and increases capital losses.
Purchasing too early means you are spending more money than you anticipated on inventory holding and labour costs. It can also mean lack of storage for stocks that are selling right now.
Not knowing how much to order
There are several things to consider when placing an order for inventory. Without accurate inventory forecasting, you are left with a guess on how much of a particular item to order.
Demand of a particular product is affected by many factors such as Lead Times, market trends, competition, etc.
Purchasing too many unneeded products ties up cash you could use to grow your brand.
Constant cycle of Out of Stock and Overstock
Without an accurate purchase plan, you are left in a constant cycle of out-of-stock situations, because you ordered too late or too little, and overstock or dead stock, because you ordered too much stock that is already past its demand phase.
USING SUPPLY CHAIN MANAGEMENT SOFTWARE TO PLAN YOUR PURCHASES
Most of the problems of poor purchasing patterns in a business is due to lack of visibility into their demand. Having an inaccurate picture of your demand and inventory in hand, can lead to the above-mentioned problems.
A supply chain management software is essential to give real time visibility into demand and inventory. The best supply chain management softwares has the capabilities of advanced inventory forecasting and replenishment planning to help you make better purchasing decisions.
Accurate Inventory Forecasting is the backbone of efficient purchase planning. Spreadsheets and traditional methods of simple sales forecasting are not accurate enough and cannot reflect the volatility of the market.
An Inventory Management Software can constantly monitor inventory levels, and use AI to predict demand by taking into account all the various factors that constantly affect demand. Having an accurate picture of your future demand, you can make better purchasing decisions and save money on purchasing unwanted inventory that likely won’t sell.
Calculating Reorder Point
Reorder Point will give you an idea of when to reorder a particular item and how much to order.
Set a minimum inventory or stock level for a specific product and with use the reorder point formula (demand during lead time + safety stock)
All products have different reorder points and should be calculated accordingly. This requires continuously monitoring inventory in real time.
An Inventory Management Software dynamically calculates the reorder point for all your inventory, whilst continuously monitoring inventory levels and demand. You can leverage this to make your purchase planning process a lot easier and more accurate.
Dynamic Safety Stock Calculations
Safety stock or buffer is held strategically at warehouses in case of spikes in demand. Having excess safety stock leads to higher inventory costs, storage costs and SLOB accumulation which leads to even more capital being locked up. An over reliance on safety stock increases costs will sink your bottom line.
An inventory management system can automatically calculate dynamic safety and cycle stock and help you make purchasing decisions to balance stock levels.
Ordering too early will result in excess inventory, while ordering too late will result in stock outs/lost sales. Stock Replenishment should not be done purely based on current demand. Current demand can be misleading, especially during volatile market conditions.
It is highly advantageous to your purchase planning process to automate the replenishment process with tools that use AI/ML to dynamically replenish orders dynamically changing policies for different SKUs based on demand phases and supplier lead times and storage space utilization. Dynamic replenishment is a driver for efficient Purchasing.
By taking into account events, promotions, lead times, storage capacity, current inventory levels and many other factors, tools like Crest can replenish proactively to reduce wastage and bring down costs significantly.