The Purchasing, Inventory Management & VAT Workshop CFM Business Services C. Franklyn Munroe www.franklynmunroe@wordpress.com
The Purchasing, Inventory Management & VAT Workshop DELIVERABLES � Inventory Management & Control Techniques � Fundamentals of Purchasing � Managing and Improving Warehouse Operations � VAT impact on Purchasing & Inventory Cost
The Purchasing, Inventory Management & VAT Workshop Effective Inventory Management ? Effective Inventory Management enables a company to meet or exceed customer expectations of product availability with the amount of each item that will maximize net profits or minimize your inventory investment.
The Purchasing, Inventory Management & VAT Workshop Inventory Management & Control Techniques � Reduce Inventory without reducing service � Forecasting Inventory Needs � Understanding Inventory Costs � Attain higher level of inventory accuracy � Classification of inventory items � Establish Key Performance Indicators (KPIs) to appraise inventory performance
The Purchasing, Inventory Management & VAT Workshop Inventory Management & Control Techniques � Determine what needs to be stored in each store, Branch or warehouse � Liquidating unwanted material � Analyzing and improving the accuracy of your forecasts of future demand of products � Maintaining reserve or safety stock quantities that will ensure you meet or exceed customer expectations of product availability at lowest possible cost
The Purchasing, Inventory Management & VAT Workshop Inventory Management & Control Techniques � Stocking – Merchandise you intend to stock � Stuff – Everything else Categorize items in warehouse: • List of high value items • List of slow moving items • List of complimentary items
The Purchasing, Inventory Management & VAT Workshop Categories of Inventory � Good (A) – Stock provides acceptable return on investment � Bad (B) – Contributes to other profitable sales; No acceptable return � Ugly (C) – Does not provide acceptable return and does not contribute to other profitable sales
The Purchasing, Inventory Management & VAT Workshop Inventory Carrying Costs � Costs of putting away stock receipts and moving material � Insurance & other charges on inventory � Rent & utilities for portion of your facility used to store materials � Physical inventory & cycle counting – No Buy, no count � Shrinkage & Obsolescence – Dead , slow moving, obsolete stock � Opportunity Cost of the money invested in inventory (Interest expense or interest earned in safe investment)
The Purchasing, Inventory Management & VAT Workshop Inventory Profitability – Key Performance Indicator (KPI) � Gross Margin = Sales – Cost of Goods Sold Sales � Adjusted Margin = Annual Profit – (Avg. Inventory x Carrying cost %) Annual Sales � Inventory Turnover = Sales Avg. Inventory Value � Other Indicators – www.r3now.com/about/scor-key-performance-indicators/ � Forecast accuracy � Inventory Carrying Costs � Shrinkage � Distribution costs
The Purchasing, Inventory Management & VAT Workshop Inventory Profitability – Key Performance Indicator (KPI) • Gross Margin is not a good indication of profitability because gross margin dollars do not vary as amount of inventory increases. • Carrying cost such as insurance, rent & Utilities, inventory shrinkage & obsolescence etc. affects product profitability • Look at adjusted margin for a specific customer. Total sales and profitability for the customer and avg. inventory for inventory maintained for each customer.
The Purchasing, Inventory Management & VAT Workshop Liquidating Stuff and Excess Inventory • Create report in descending order based on value of what is eligible to be liquidated • Inventory is sunk expense; only worth what someone will pay • Don ’ t get emotional • Transfer to another location where needed • Reduce price • Provide sales person incentive to sell • Advertise – place on internet, List with excess supply companies • Substitute Products • Return Material to vendor • Donate material to non-profit organizations • Throw it away
The Purchasing, Inventory Management & VAT Workshop Maintenance of Inventory Records • Stocktaking days – inefficient • Implement Cycle Counting – updated on a periodic basis • Cycle counting used with ABC analysis to determine cycle • Elimination of shutdowns and interruption • Elimination of annual Inventory adjustment • Trained personnel and inventory accuracy • Errors identified and corrected more timely
The Purchasing, Inventory Management & VAT Workshop Level of Inventory Accuracy • Accurate records are a critical ingredient in production and inventory system • Allows organization to focus on what is needed • Necessary to make precise decisions about ordering, scheduling and shipping • Incoming and outgoing record keeping must be accurate • Stockrooms should be secure
The Purchasing, Inventory Management & VAT Workshop Evaluate & Maintain Safety Stock Safety stock is reserved Inventory maintained to protect customer service in case of unused demand or delays in receiving stock receipt during the time it takes to replenish inventory. Safety Stock Items • Products with erratic usage • Products with erratic lead times • High profit items • Stock required for a specific customer • Painful Backorders
The Purchasing, Inventory Management & VAT Workshop Inventory Forecasting A Demand forecast is a prediction of the quantity of a product that will be sold, transfer, or used during a time period. Demand Forecast based on five (5) elements: 1. Past Usage of product – Increases, decreases and seasonality 2. External Trends – economic or environmental factors 3. Events – promotions, holidays etc 4. Collaborative information from customers / sales persons 5. Appropriate forecast horizon or time period Better your forecast, the less you need to stock to maintain your desired level of customer service.
The Purchasing, Inventory Management & VAT Workshop Inventory Forecasting – Common Problems • The if its on paper , it must be true syndrome • Most systems base demand solely on some average of past usage • Usually one formula is used to calculate demand for all products • Usually no verification to see if quantity forecast for a certain month was actually sold or shipped in that month • No system for reliably obtaining future prediction of customer demand
The Purchasing, Inventory Management & VAT Workshop Inventory Forecasting – Stock Questionnaire • Who will buy product or product line • Estimates of usage for six (6) months • Anticipated Gross Margin for sales • Usage of product have on existing stock • How many month ’ s supply. What inventory necessary • Where will inventory be stored • How can unsold stock be liquidated. Can items be returned
The Purchasing, Inventory Management & VAT Workshop New Stock – Sales & Marketing Focus Provide salesperson with weekly report of sale of new products: • Items/description • Sales & gross margin projection • Actual sales and gross profits • Available quantity • Value of quantity • Budget for new items • Person requesting item to be stocked
The Purchasing, Inventory Management & VAT Workshop Fundamentals of Purchasing � How to become savvy negotiator � Legalities of purchasing decision � Keep information accessible and up to date � Basic principles of successful purchasing � Choose suppliers with lowest overall cost for best value
The Purchasing, Inventory Management & VAT Workshop What is Procurement / Purchasing ? Procurement is the acquisition of goods, services or works from an external source. It is favorable that the goods, services or works are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality, quantity, time and location.
The Purchasing, Inventory Management & VAT Workshop Fundamentals of Purchasing � Buying material at right QUALITY � In the right QUANTITY � From the right SOURCE � At the right PRICE � Delivered at the right PLACE � At the right TIME � With the right mode of TRANSPORT
The Purchasing, Inventory Management & VAT Workshop Lowest Cost, Best value Choice There are four (4) elements of purchase cost: • Quality – rejection %, shelf life, reliability • Service – Response Time, technical ability • Delivery – Transport, storage, stocking, on time % • Price – Payment terms, discounts, bulk purchases Total costs of ownership is the sum of cost elements in Quality, Service, Delivery & Price
The Purchasing, Inventory Management & VAT Workshop Legality in Purchasing Decisions • The procurement department should have polices and procedures, which would include legal rights in purchasing. • All purchase contracts / agreements should be pre-approved by compliance and/or legal department • Terms of contract – quantity, quality, price, credit terms, delivery terms etc. • Know legal impact of Information age – electronic contracts and signatures
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