Benefits of Prediction Tools in Procurement Management

The day-to-day operations of any company are complex. They require a multitude of decisions that affect all departments and hierarchical levels, often acting like interconnected dominoes. A failure in one piece can cause the collapse of part or all of the organizational chain.

One area where the importance of sound planning to facilitate decision-making is particularly evident is procurement management. How much will I sell? Do I have enough stock? How much do I need to buy? Can I handle unforeseen events with existing reserves? These are questions constantly facing the departments responsible for acquiring references.

Until now, the answers to these and many other questions arising in inventory management were resolved based on employee experience, the results of previous campaigns, the warehouse manager’s intuition, supply offers, one-off orders, estimated delivery times… in short, fickle and disconnected information based on perceptions, which may or may not be accurate in markets currently defined by their instability.

To put an end to this situation in purchasing processes, the current digital economy—where data is the new oil—has seen the development of demand forecasting systems. These allow procurement processes to be approached in a fully efficient manner, both from a financial standpoint and in terms of infrastructure optimization and customer service.

Demand forecasting tools utilize both internal and external data from the company and its sector to ensure an adjustment of current and future needs, based on parameters such as sales history, market trends, supplier lead times, turnover rates, etc.

Once data from ERPs, WMS, CRM, IoT, MRP, and all available sources are compiled, they are processed with predictive algorithms both individually and collectively to obtain the organization’s true immediate and long-term needs. These are reflected in visual and intuitive dashboards that facilitate decision-making. The circle is completed with the use of Artificial Intelligence to automate purchasing processes and receive stock acquisition suggestions autonomously.

Benefits of Demand Forecasting

The implementation of demand forecasting systems such as FRIGG, a SaaS solution developed at LIS Data Solutions, in purchasing departments, provides a multitude of benefits in inventory management and control:

• Time savings: The automation of procurement management leads to a considerable reduction in time spent analyzing planning and defining purchasing needs, which are also much more efficient.

• Optimal stock levels: Forecasting future product needs ensures the achievement of optimal inventory levels, as it prevents stockouts and overstocking. The first situation, a lack of references, can lead to the loss of customers due to the inability to fulfill their requests and may force manufacturing processes to stop due to a lack of raw materials, for example. The second, excess stock, has serious drawbacks derived from space occupancy and tied-up capital.

• Improved supplier pricing: Accurate forecasting allows for proper planning. By carrying out procurement without urgency, better prices can be obtained from suppliers.

• Reduction of obsolescence and risk: Demand forecasting also makes it possible to reduce reference obsolescence levels and the risk derived from excess stock due to low turnover.

• Direct supply: Predicting product requirements can achieve direct customer/supplier supply, with consequent savings in distribution costs.

• Related purchases: Demand forecasting also allows for the acquisition of related items from the same supplier, optimizing the transport network and improving supply costs.

• Ability to react to demand variations: Prediction tools like FRIGG enable real-time control of stock levels, taking into account factors such as outstanding orders or supplier lead times, providing the ability to react to variations in customer demand.

• Reliable information: Working with predictive analytics provides reliable (multivariable) information for future decision-making, both in negotiations with suppliers and for launching marketing campaigns, offers to reduce low-turnover stocks, etc.

Conclusion: Over 15% Reduction in Stock Volume

The development of Big Data, Business Intelligence, and Artificial Intelligence is changing the way businesses are managed. Efficiency and profitability parameters increase in those organizations that have initiated digital transformation processes and are moving toward what is known as Industry 4.0. Businesses generate information every second, and now, thanks to Advanced Analytics, tools exist to take advantage of it.

One of the areas where this need is most obvious is procurement management, where there has been a shift from working based on staff experience and intuition to digital demand forecasting processes adjusted to the organization’s present and future reality.

The benefits are innumerable, and to make this reality tangible, we provide a key figure: at LIS Data Solutions, we have verified, for example, that by implementing forecasting systems in procurement management with FRIGG, our clients have reduced their stock levels by more than 15%. This results in freed-up space, the elimination of obsolescence and risks, the release of tied-up capital, improved service, and increased efficiency and profitability.