CFOs, Purchase Orders, Inventory, Supply Chains, and the Recession

 

From the pandemic to now and a pending recession. From no inventory to excess inventory—and trying to balance demand and supply. Plus, throw in inflation. And so it went. It is about your upstream supply chain.

Your challenge is to adapt to the coming recession and your spending reduction to deal with it. And add the chance of more disruption. There are the usual suspects here—the same old.  But think bigger on what to do. There are limits to what you can gain from cost reductions with people and pushing for lower purchasing prices and transportation rates.

Emphasize your upstream supply chain—where the supply of supply chains begins. It is the critical, largest, biggest cost, and most complex part of your company and touches more parts of it than any other function. There are opportunities with inventory and process. If you want with.

Procurement and transportation/logistics (whether separate or included with the product buy) are your biggest spend. All that inventory and bringing it in and the capital expenditure. Your international buy is often the bigger slice than the domestic purchase.

Start with whether you have made changes upstream in the past two years, why you did, what they are, and how well things worked out.  Note that the pandemic did not create weaknesses in the end-to-end supply chain. It exposed them. Just as it highlighted that the upstream supply chain is critical and strategic. Remember, the last two years, both directly, and indirectly, have been the upstream segment of your business. And that area is vital for your building resilience.

STEPS:

·       Analyze how much capital you have invested in inventory—your spend. How much money do you have tied up in buffer inventory to cover time and inefficiencies?

·       Think of your inventory-related purchase and cash flow.

·       Assess your inventory as to turns/days of and percent of revenue. What is your ROI?

·       Focus that your supply chain, even your business, begins upstream at Mile Zero and your purchase order.

·       Remember that if you struggle here, you cannot fix it downstream. It is too late.

·       Consider your supply chain is in a time of continuous disruption. Normal is a moving target and time can be your enemy.

·       Go beyond costs. Think how you do the process, total time, and technology.

·       Recognize the inefficiencies that impact your inventory. 

·       Ask yourself. How efficient you are you? How much handling and multiple handling of documents and information are there among all the parties? How easily and well do you prepare and see your purchase orders and what is happening with them?  Now think what it means to your inventory and inventory buffer.

·       Move from Excel to digital—a key to gaining resilience, ESG, transparency for manufacturing and retail/sales, and procurement and transportation efficiency. This is more of a requirement for you than an option.

 

PURPOSE:

ü  Draw on lessons learned from the last two years and improve your operations and technology.

ü  Put your focus where your spend is.

ü  Streamline your purchase order process.

ü  Move to a digital platform.

ü  Gain procurement process efficiency.

ü  Provide visibility.

BENEFIT:

1)    ompress time from PO placement to PO delivery. 

      Mitigate purchase order time variance.

2)     Reduce capital tied up with inventory. Remember interest rates.

3)     Increase inventory turns/reduce days of inventory.

4)     Improve your inventory capital investment ROI.