Procurement: What a Load of Rubbish
Procuring goods is one thing, but what happens when you need to get rid of them again? How can Procurement better manage its waste problems?
“That’s great, but we don’t need it anymore/we don’t need that much.”
As Procurement professionals, we have all been in this situation. We work hard with internal stakeholders, running down all the specification requirements, checking off Bills of Materials, and ensuring that the goods being procured are the right ones. After all, that’s what the job entails.
And yet, once the job is complete, or once the urgent requirement has been resolved, it frequently becomes clear that factors such as Minimum Order Quantities (MOQs), miscalculations, and even mistakes, mean that goods have been bought in too great a quantity, or were never needed in the first place.
Cue much frustration on the part of Procurement and a general wish for the benefit of hindsight…
This isn’t as bad as it has been in the past. Better data analysis and management in organisations mean that over-ordering is mitigated, and even when it does happen, many organisations are willing to hold any excess as stock or inventory (assuming it’s at an appropriate level) knowing that it can be used in the future.
And, if this isn’t the case, then there are an increasing number of options available to Procurement to help to reduce that excess inventory.
Eliminate the Waste
The best saving Procurement can make is not spending the money in the first place. The same can be said for excess inventory: it’s best to never have bought it at all. Procurement processes can help to ensure that requirements and orders are accurate, and the best – but not necessarily easiest – way for this to happen is for Procurement to be involved in project and demand planning, specifications and Scopes of Work from the outset.
Yes, this will involve engagement with key internal stakeholders, analysing historical data and addressing factors such as forecasting and supply chain management, but as we have said already, that’s just the job!
Procurement also needs to build its own robust processes, make good use of data analytics, and implement strategies such as Category Management and strategic supplier management to help reduce the risks of ordering excess goods. Put together with internal engagement, this allows for more accurate, organisation-wide forecasting and planning, and a greater understanding of the true requirements.
Reducing Excess Inventory
Unfortunately, this is often easier said than done, even in the best and most organised Procurement departments. Not only does it take considerable time and effort to achieve, but the ‘human factor’ in the process means that it’s never 100% foolproof. Excess inventory is inevitable, so it’s worth knowing how best to get rid of it.
There are a number of tactics that Procurement can use which will feed into strategies that are probably already in place anyway. Close relationships with suppliers, the circular economy – even the organisation’s environmental credentials! – can be lent on to help reduce inventory. Here are just a handful of ideas that can be investigated:
- Refunds – work with your suppliers to return excess stock to them for either a refund or a credit. The chances are they have other customers willing to buy it already.
- Call Offs – strategic suppliers may be open to Call Off Instructions on orders that place the stock burden on them, rather than you. This can also be a boon for cashflow.
- Sell It On – why not package up excess stock as spares or warranty parts for existing customers, or use it for service agreements. You might hold on to the stock for longer, but it has a value attached to it on the customer side.
- Trade It – if your supplier won’t take it back, then look at trading with other organisations. They might have something you want and you can trade it for something you don’t need anymore.
- Recycle It – if there is no way to use it again, and there are no other options, then recycle the parts or put them into the circular economy.
Enter the ‘Grey Market’
Ever had someone mention that they could source that product on Amazon or eBay, or that they wish the sales platform better resembled the best of the B2C marketplaces? Not only are online portals becoming more reminiscent of the ones we tend to use in our personal lives, but there is also an increasing occurrence of Procurement using these online sources for one-off or troublesome requirements.
The ‘Grey Market’, defined as “unofficial distribution channels or sellers who sell goods, securities, or other commodities”, opens up new potential sources of supply for organisations looking for items that are being resold, have been returned, or provide items that are obsolete and no longer available from the OEM.
These channels weren’t a viable option for most organisations even a few years ago, but now many are working with third-party sellers, or on third-party sales sites, to sell their excess inventory or parts that are surplus or have been remaindered. This effectively creates a huge second-hand marketplace, reducing waste and allowing organisations to regain some value for these items.
That is not to say that there aren’t risks involved with buying or selling in the Grey Market. Issues such as poor traceability, poor storage or disfunctional units, and even counterfeit goods are common, but in many cases, organisations will feel that these are risks worth taking to source obsolete or unusual parts, and to sell off their own stock.
Understanding Waste
The issue of waste and how it is dealt with is going to grow in the coming years, and organisations will need to have the right strategies in place to deal with it. However, as markets open up more, trade between organisations becomes more common, and a greater level of trust is placed in non-standard sources, Procurement has a much broader scope of options available to reduce their waste and help others to do the same.
