The timing of when to buy and who much to buy are a sizable impact on a company’s profit picture. Buy too early and precious capital is needlessly tied up. Order too late and the you run the risk of shutting down operations. Neither option is very attractive.

While much of procurement is an art, inventory management is a science. The key analytics were developed in the 1950’s and haven’t changed much since. Order points (when to order) and order quantity (how much to buy) should be calculated from the mean and standard deviation of usage and lead-time. Many of these calculations are embedded in procurement systems. Look carefully at the formulas. Canned programs often do not include the variability of lead-time. Not only is variability of lead-time a powerful it is also easier to manage than demand.

Understanding demand patterns and forecasts is also necessary to optimize inventory levels. Purchasing must work with operations/manufacturing to project demand, accurate forecasts permit lower inventories. Accurate forecasts are also have real value to the supplier. When asked "What can Purchasing provide to lower our prices?" suppliers most often answer "Predictable forecasts!"