Procurement and Inventory Analysis Series - Literature View

Let's take a deep breath since we're going to discussing the theory of Procurement and Inventory Analysis. 

Procurement

According to Mr. Andover from his book "Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice". Procurement is the acquisition of goods, services or works from an outside 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 and quantity, time, and location.

We have two ways to get a product, which is:

1. Routine purchasing

2. Tender/Auction

We use routine purchasing when we know exactly what and to whom we are going to buy the product. We know the supplier. And we made a deal with them. Whether its a contract or unspoken understanding. While Tender/Auction will be used when we don't really know the product. Supplier will make an offer (you can refuse) and we're going to make a choice which supplier is the best.

Inventory

We are all can argue about particular word definition, so I open up a dictionary to find the definition of Inventory. Accourding to Chambers Dictionary Inventory (not to be mistaken with Gaming Term) is  the goods and materials that a business holds for the ultimate purpose of resale.

Every Company has its own way to store their Inventory. But here are some reasons why company store their product:

- Time

Since lead time for production is vary, some company choose to store their product in the warehouse.

- Uncertainty 

We can't predict future sales. Only superheroes can. But we're all know they're didn't exist.

- Economic Scale

Some product has their own economic scale. Logistic, production cost, etc will affect economic scale.

- Value Added

Some product are better when you store them for a long time. Like wine or cheese.

There are many types of inventory, such as:

- Pipeline Inventory

Transition between inventory/production

- Anticipation Inventory

For anticipating increasing sales in some season/event (Forward Buying)

- Cycle Inventory

Scheduled Inventory

- Safety Stock/Buffer Stock

Yet another anticipation for uncertain demand and supply

That's it for now. Next we will continue to share our solution using these theory we just learned.