Trends: If You Don’t Control It You Don’t Own It

April 1, 2016

Brian Isard

As a business owner or manager establishing control over your core business processes is a key determinant of your organization’s success. We are often asked: how can good control be achieved? One of the challenges faced in our industry with companies both large and small is how you put in controls on the procurement process when lumber markets are essentially out of the individual company’s control.

One of the earliest lessons I learned about control was from Mac Findlay owner of Findlay Pallet Company in Chesley, Ontario. Mac passed away a number of years ago but the process he used to successfully control procurement was not lost on me. Mac had a simple notebook in which he wrote the details of every load of pre-cut lumber and cants that he purchased. He described the loads by purchase order number, supplier, FOB Mill and Delivered pricing, the yield on processing the cants, and whether the supplier delivered on time or not. The notebooks went back over a decade and he used these to accurately forecast seasonal price trends and lumber availability. Armed with his notebooks he had critical information about his procurement process that allowed him to keep his raw material inventory at optimal levels and secure the best prices for purchased inventory. 

The simplicity of the notebook approach was that anyone in the company had easy visibility of this information.

That lesson stayed with me and proved itself invaluable over time. Markets will always be a challenge to deal with but control of the procurement process is absolutely essential if you want to be successful in our industry.

Over the years I have had the opportunity to study the procurement process both at school and in practice across complex supply chains. The essentials to controlling the procurement process are :

  • Up-to –date inventory pricing information by product type, which provides better product costing information
  • Pricing trend analysis by product, which allows you to review spending history before negotiating new purchases 
  • Supplier performance on yield, which allows you to evaluate quality on raw material purchased
  • Record of charges over and above purchase cost such as freight and storage costs, which provides data to decide how to switch between regional suppliers
  • Supplier performance on delivery, which allows you to better manage inventory levels and buy only what you need 

These days there are a number of software programs that can help to integrate the procurement process into your business management to achieve a high level of control. Other companies have gone in a different direction and formed strategic relationships with wholesalers who manage this process for them. This streamlined approach to inventory management and order fulfillment is called Vendor Managed Inventory (VMI). While it is quite a change from the traditional ordering process, the objective involves the same fundamental objective to control the procurement process. The lesson I learned from Mac Findlay is to make your system up-to-date, user friendly and readily visible even if it’s just a plain old notebook.

Interested in looking at your work processes with an eye on where your business can improve your cost performance? Our Association is offering a Process Improvement Consultation with industry professionals. Come out to our Annual General Meeting on May 15-16th and participate in the draw for the confidential consultation with industry professionals.

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