01 — Programme Outcome Map & Business Diagnostic
1. What you will learn
This lesson turns procurement into three specific outcomes for your business over ninety days, and gives you a diagnostic for choosing which three. You will learn to read your own purchasing for the symptom that matters most, since the remedy for a price problem, a reliability problem, a stockholding problem and a concentration problem are entirely different.
2. The idea explained
Procurement problems come in four patterns.
The first is price drift. Your landed costs have risen relative to the market, or simply been left unexamined. The symptom is that fresh quotations from alternatives come in materially below what you pay. The remedy is re-quoting and negotiation.
The second is reliability. Deliveries are late or short, forcing emergency purchases at retail rates, overtime, or missed commitments to your own customers. The symptom is a record of failures and of premium purchases. The remedy is a second source, or written delivery terms, or both. Note that this pattern often costs more than price drift and is almost never measured.
The third is stockholding. You hold far more stock than your usage and lead times require, usually because of minimum order quantities, fear of stockouts, or slow-moving lines nobody has cleared. The symptom is stock days far above lead time plus a reasonable buffer. The remedy is order-size negotiation and clearance, not price negotiation.
The fourth is concentration. One supplier holds a large share of your purchases and you have no current alternative. This one is a risk rather than a cost, and it may be producing a perfectly good rate. The remedy is to establish alternatives, not necessarily to switch.
The diagnostic is therefore: obtain fresh quotations on your top lines and compare against what you pay; count last year's delivery failures and the premium they cost; calculate stock days against lead time; and calculate supplier concentration. Whichever pattern is largest decides your three outcomes.
A usable outcome has five parts: a baseline, a target, a deadline, an owner and a review date. Reduce landed cost per usable kilogramme of granule from ninety-four to below ninety rupees by the end of the quarter, owned by me, reviewed monthly, is an outcome. Buy better is not.
Choose three. And expect that at least one will not be achieved, because suppliers may decline and markets may move against you.
Apply it
3. How to apply it in your own business
From your baseline, obtain two fresh quotations for each of your top three lines and compare against your landed cost.
Count last year's late or short deliveries and estimate what each cost you in emergency purchase, overtime or lost work.
Calculate stock days for each major line: stock value divided by average daily usage value. Compare against observed lead time plus a buffer.
Calculate each supplier's percentage of your total purchases.
Read which pattern is largest and write three outcomes addressing it, each with five parts. Put the review dates in your calendar immediately.
Where an outcome involves changing written terms or credit arrangements, take qualified professional advice on the documentation.
Worked example
4. Worked example
A furniture workshop runs the diagnostic. Annual purchases three million rupees; revenue four million four hundred thousand; direct costs three million three hundred thousand including labour; contribution one million one hundred thousand; fixed costs nine hundred and sixty thousand; annual surplus one hundred and forty thousand rupees.
Price. Plywood is his largest line at one million two hundred thousand rupees. He pays a landed cost of two thousand three hundred and eighty rupees a sheet. Two fresh quotations come in at two thousand three hundred and forty and two thousand four hundred and ten. So he is roughly at market, and the indicated gain is about forty rupees a sheet on about five hundred sheets, which is twenty thousand rupees. Modest.
Reliability. His hardware supplier was late or short on twenty-three occasions last year. Each time he bought locally at retail, on average two thousand one hundred rupees against his normal one thousand five hundred and eighty, a premium of five hundred and twenty rupees, and on nine of those occasions work stopped for part of a day. Twenty-three times five hundred and twenty is eleven thousand nine hundred and sixty rupees of premium. The nine part-days, valued at the contribution he loses on a day's output, which is one million one hundred thousand divided by about three hundred working days, or roughly three thousand six hundred and sixty rupees, and taking half a day each, is nine times one thousand eight hundred and thirty, which is sixteen thousand four hundred and seventy rupees. Total about twenty-eight thousand four hundred and thirty rupees.
Stockholding. Plywood stock is three hundred and twenty thousand rupees against average daily usage of about four thousand rupees, which is eighty days. His observed lead time is six days. Even with a generous buffer, eighty days is far too much, and on inspection about a third of it is sizes he rarely uses. Clearing one hundred thousand rupees of slow stock releases that cash and saves funding of about one thousand two hundred and fifty rupees a month, or fifteen thousand a year.
Concentration. His plywood merchant is forty per cent of purchases, with no current alternative quotation until this exercise.
Reading it: the largest single item is reliability at about twenty-eight thousand rupees, followed by stockholding at fifteen thousand plus a hundred thousand of released cash, then price at twenty thousand. His three outcomes therefore address reliability first, stockholding second, and price third, which is the reverse of where his attention had been.
5. Common mistakes and how to fix them
Diagnosing before quoting. Obtain fresh quotations first; intuition about whether you are paying market is usually wrong.
Never counting delivery failures. Count them and price the premium and the lost output; this pattern is often the largest.
Reading high stock as prudence. Compare stock days against lead time plus a buffer, and look for slow lines.
Treating concentration as a cost. It is a risk; the remedy is to establish alternatives, not automatically to switch.
Writing outcomes without baselines. Every outcome needs a starting figure or it cannot be judged.
Setting more than three outcomes. Three, with review dates in the calendar from the start.
Key takeaways
6. Board summary
Procurement problems take four patterns: price drift, unreliability, excess stockholding, and supplier concentration. Diagnose by fresh quotations, a count of delivery failures with their cost, stock days against lead time, and concentration percentages. Unreliability is frequently the largest cost and is almost never measured. Concentration is a risk rather than a cost; establishing alternatives is the remedy, not automatic switching. Write three outcomes with baseline, target, deadline, owner and review date, and expect at least one not to be achieved.
Check your understanding
7. Practice and self-check
Question one. What are the four patterns? Answer. Price drift, unreliability, excess stockholding, and supplier concentration.
Question two. Which pattern is most often unmeasured? Answer. Unreliability, whose cost sits in emergency purchases, overtime and lost output.
Question three. In the example, what was the indicated price gain on plywood? Answer. About twenty thousand rupees, at forty rupees a sheet across about five hundred sheets.
Question four. What premium did the twenty-three failed deliveries cost? Answer. Eleven thousand nine hundred and sixty rupees, at five hundred and twenty rupees each.
Question five. How was the lost output valued? Answer. At about one thousand eight hundred and thirty rupees per half day, from annual contribution of one million one hundred thousand over about three hundred days.
Question six. What was the total reliability cost? Answer. About twenty-eight thousand four hundred and thirty rupees.
Question seven. What were his plywood stock days, and what was his lead time? Answer. About eighty days of stock against an observed lead time of six days.
Question eight. Why were his three outcomes the reverse of his instinct? Answer. Because reliability and stockholding each cost more than the available price gain, which was where his attention had been.