# Procurement Planning

Procurement planning is where the supply plan meets the outside world — ensuring that purchased materials, components, and services are available in the right quantities, at the right time, and at an acceptable cost to support the supply plan. 📦

Procurement planning:
The forward-looking process of translating production requirements into material purchase plans, incorporating supplier constraints, lead times, and cost considerations into the IBP cycle.

In many organizations, procurement operates reactively — placing orders when MRP tells it to. In a mature IBP process, procurement is a proactive participant with a seat at the table months before orders are placed.

# Why Procurement Needs Early Demand Visibility

Not all materials are created equal. Some have lead times measured in days; others require 6, 9, or even 12+ months of advance commitment. Long-lead-time materials — specialty chemicals, custom castings, semiconductors, imported raw materials — need procurement visibility that extends well beyond the typical production planning horizon.

If procurement only sees the next 4-8 weeks of demand, you'll face two predictable outcomes:

Expediting costs when demand spikes and materials aren't on order
Excess inventory when demand drops and committed orders can't be cancelled

The IBP process solves this by sharing the consensus demand plan with procurement at the planning horizon they actually need — not just the execution horizon.

# Supplier Capacity and Risk

Your supply plan is only as strong as your weakest supplier. Procurement planning must account for:

Supplier capacity limits — Can your key suppliers actually deliver the volumes your plan requires? This is especially critical during growth phases or new product launches.
Single-source risk — If a critical material comes from one supplier, any disruption (fire, bankruptcy, geopolitical event) stops your production. Dual-sourcing costs more but buys resilience.
Geographic concentration — Multiple suppliers in the same region share the same weather, infrastructure, and political risks.
Financial health — A supplier in financial distress may cut corners on quality or fail to invest in capacity.

These risks should surface in the supply review, not after a stockout.

# Make vs. Buy Decisions

Make vs. buy is a strategic question that deserves regular revisiting within IBP — not just a one-time decision buried in a business case from five years ago.

Triggers for re-evaluation:

Significant volume changes (up or down) that shift the economics
Supplier quality or delivery performance problems
Internal capacity becoming available (or constrained)
Cost structure changes (labor rates, commodity prices, tariffs)
New technology or capability requirements

The IBP process provides the right forum for make-vs-buy because it brings together demand, supply, and financial perspectives simultaneously. A make-vs-buy decision that only looks at unit cost is incomplete — it must also account for capacity implications, lead time changes, and total supply chain cost.

# Strategic Sourcing vs. Tactical Purchasing

These two activities serve different purposes and operate on different time horizons. Confusing them leads to procurement teams spending all their time on purchase orders and none on the decisions that actually move the needle.

Horizon: 1-3 years. Strategic sourcing is about building the right supplier base and negotiating the right commercial structures:

Supplier selection and qualification
Contract negotiation (pricing, terms, volume commitments)
Category strategy development (consolidate vs. diversify, domestic vs. global)
Total cost of ownership analysis (not just unit price — include freight, quality, inventory carrying cost)
Supplier development and innovation partnerships

Strategic sourcing decisions feed directly into the IBP financial plan — contracted prices set the material cost assumptions for the P&L.

Horizon: 0-3 months. Tactical purchasing is execution — converting planned requirements into purchase orders, managing delivery schedules, and resolving short-term supply issues:

PO creation and confirmation
Delivery tracking and expediting
Short-term supplier communication on schedule changes
Invoice and receipt discrepancy resolution
Spot-buying for unplanned requirements

Tactical purchasing should be as automated as possible so that procurement professionals can spend more time on strategic sourcing.

# Commodity Risk and Financial Planning

Raw material price volatility is one of the biggest sources of financial plan variance in manufacturing businesses. Commodity risk management is where procurement and financial planning must collaborate closely:

Price exposure — Which commodities represent the largest spend, and how volatile are their prices? Steel, resins, energy, and agricultural inputs can swing 20-40% in a year.
Hedging strategies — Fixed-price contracts, financial hedges, and strategic inventory builds can reduce exposure, but each has its own cost and risk.
Pass-through mechanisms — Can commodity cost changes be passed to customers through pricing adjustments or surcharges? How fast?
Scenario planning — The IBP financial reconciliation should model commodity price scenarios (base, upside, downside) and their P&L impact.

# Supplier Scorecarding

You can't manage what you don't measure. A procurement scorecard tracks the metrics that matter most for planning reliability.

Metric	What It Measures	Why It Matters for IBP
OTIF (On Time In Full)	% of orders delivered on the promised date, in the promised quantity	Directly drives your ability to execute the supply plan
Quality (PPM or lot acceptance %)	Defect rate of incoming materials	Quality failures cause unplanned downtime and scrap — both disrupt the plan
Lead time reliability	Variability in actual vs. quoted lead time	High variability forces larger safety stock buffers — see inventory policies
Cost competitiveness	Price benchmarking against market and alternatives	Feeds into supply chain cost modeling and margin analysis
Responsiveness	Speed and quality of communication on issues and changes	Determines how quickly you can react to plan changes

Scorecard data should inform both tactical decisions (which supplier gets the next order) and strategic ones (which suppliers to develop, consolidate, or exit).

# Procurement Risks and IBP Mitigation

Risk	Impact	IBP Mitigation Strategy
Single-source dependency	Production stoppage if supplier fails	Qualify alternate sources; model dual-source cost in financial plan
Long lead time materials	Inability to respond to demand upside	Extend planning horizon visibility; consider strategic inventory buffers
Commodity price spikes	Margin erosion, financial plan miss	Scenario modeling; hedging; contract structures with price caps
Supplier quality failure	Scrap, rework, customer complaints	Scorecard-driven qualification; incoming inspection investment
Geopolitical / trade disruption	Tariffs, shipping delays, import restrictions	Geographic diversification; nearshoring evaluation in IBP strategic review
Supplier financial distress	Sudden loss of supply source	Financial health monitoring; pre-qualified backup suppliers

Supply Planning — the overall planning process that procurement supports
Supply Chain Costs — cost modeling that procurement decisions directly influence
Capacity Planning — internal capacity considerations that interact with make-vs-buy decisions
Financial Planning — where commodity risk and procurement costs hit the P&L