Learn procurement
How buying for a business works, in four small games.
No experience needed. Every company that makes or sells things has someone deciding what to buy, from whom, and when. Each game below takes a minute, teaches one idea that professional buyers use every week, and ends by showing where the software does it for you.
The whole job, in one line
From “we need this” to “it’s on the shelf”.
Procurement is everything between a business noticing it needs something and that thing arriving, paid for, at the right price. For a company that makes or sells goods, most of it is direct materials: the parts that end up in what it sells. Here is the journey every one of them takes.
- Notice the need Stock is running down faster than a new delivery could arrive.
- Ask for prices Several suppliers quote the same thing, on the same terms.
- Compare and choose On what it will really cost to get here, not the price alone.
- Order and agree a date A purchase order, and a dispatch date the supplier commits to.
- Chase it home Follow up before it is late, not after, and cost the delay if it is.
- Receive, and start again The goods arrive, the stock goes up, and the clock starts over.
When to order
The order has to leave before the shelf is empty.
Every part a business keeps takes time to replace: the lead time. If a truck takes six days and you sell ten a day, you have to order while at least sixty are left, or customers find an empty shelf. That is a stockout.
Order too early and too often, and money sits on the shelf instead of in the bank. The level that balances the two is the reorder point: what you will sell during the lead time, plus some safety stock for a busy week.
Try it yourself first. Then watch the formula play the same sixty days.
In Procurement Control Tower, this sum runs on every part the business stocks, every week, from its own usage and its own suppliers’ lead times. Each part gets a verdict: order now, order next month, or on track. Run it on your own numbers →
Keep the shelf stocked for sixty days
This is a game when JavaScript is on. The idea it plays out: a truck of 100 takes six days to arrive and customers take about ten a day, so you have to order when about sixty are left, plus whatever you keep back for a busy week. Order later and the shelf runs empty before the truck comes.
You are the buyer. Press start, and order a truck whenever you think it is time.
| Over 60 days | You | The formula |
|---|---|---|
| Days the shelf was empty | 0 | 0 |
| Customer orders not served | 0 | 0 |
| Stock held, on an average day | 0 | 0 |
| Trucks ordered | 0 | 0 |
Reorder point = 10 a day × 6 days + 30 held back = 90. Empty on 0 days; about 0 on the shelf on an average day.
What it really costs
The cheapest price is often not the cheapest purchase.
Suppliers answer a request for prices, an RFQ, with a quotation. But a quotation only covers part of the journey. Three letters on it, the Incoterm, say where the supplier’s costs stop and yours begin: at their factory gate, on a ship, or at your door.
Everything after that point is yours to pay: freight, insurance, import duty, port charges and the last truck. Add it all up and you have the landed cost, the only number two suppliers can fairly be compared on.
Pick the one you would buy from. Then ship all three.
In Procurement Control Tower, quotations in different currencies, Incoterms and ports are compared side by side on landed cost, and the award keeps its reasons. In the worked example, the ranking reverses by 199,090 SAR. See the real comparison →
Three quotations for the same part. Which is cheapest?
This is a game when JavaScript is on. The three quotations are 56.00 delivered to your door, 50.00 loaded on a ship abroad, and 46.00 at a far-away factory gate. Add the rest of each journey — collection, freight, insurance, duty, port charges and the last truck — and they land at 56.00, 58.46 and 60.43. The cheapest quotation is the dearest purchase.
Rows re-order, cheapest first, as each cost lands. The duty leg is the darker gold; the far-away factory's country attracts a higher rate.
Follow one container
Thirty-four days, six stops, and 8.46 nobody quoted.
A part quoted at 50.00 a unit, FOB, by a maker abroad. Scroll, and follow the container from the factory gate to your warehouse: what happens at each stop, who is responsible for it, and what it adds to the price.
Made, packed, and still the supplier’s problem.
Had the quotation said EXW, ex works, you would collect it here, and every cost from this gate onward would be yours. This one says FOB, free on board, so the supplier pays to truck it to their port and load it.
The moment it is on board, it is yours.
Under FOB, cost and risk pass to the buyer once the goods are loaded. You have not seen them, and they are already on your bill. If the ship meets a storm, the loss is yours to insure.
Freight, insurance, and three and a half weeks of waiting.
Ocean freight adds 4.00 a unit and insurance 0.25. For twenty-four days the money is spent and the stock cannot be sold. This is most of the lead time, and why the first game was about ordering early.
The border charges duty on more than the price.
Here import duty is 5%, charged on the goods plus freight plus insurance: 5% of 54.25, not of 50.00. That is 2.71 a unit. If a document is wrong, the container waits, and the port starts charging for every day it does.
Handling, clearance, and the agent’s invoice.
Lifting the container off the ship, the terminal’s charges and the customs agent’s fee add 0.90 a unit. Each line looks too small to matter. Together with the last truck they are 1.50, almost a fifth of everything added on top of the quote.
On the shelf at 58.46, not 50.00.
The last truck adds 0.60. The goods are received, the stock goes up, and the part has cost 16.9% more than its quotation. That is its landed cost, and the only fair figure to compare suppliers on.
In Procurement Control Tower, quotations are compared on this landed figure, and each order’s agreed dispatch date and follow-ups are tracked until it arrives. See it on one real purchase →
Each tag marks how far the seller pays under that Incoterm: EXW nothing past the factory gate, FOB until it is loaded, CFR the sea freight to your port, DDP everything to your door, duty included.
- Price on the quotation, FOB50.00
- Ocean freight4.00
- Insurance, 0.5% of the goods0.25
- Import duty, 5% of 54.252.71
- Port handling and clearance0.90
- Truck to the warehouse0.60
Per unit, illustrative; the arithmetic of the landed-cost article.
When it is late
A late delivery has a price, and the contract already set it.
Once a supplier wins, the buyer sends a purchase order and agrees a date. Then the work is expediting: checking in before the date, not after it.
Many supply contracts include liquidated damages: a fixed share of the order’s value the supplier owes for each week late. It usually starts after a few days’ grace and stops at a cap. It is money a business is owed, and easy to leave unclaimed when nobody works it out.
Drag the delivery later and watch the amount owed build up.
In Procurement Control Tower, the clause is entered once and works itself out for every late part and every agreed date, measured from the original promise even when the date is rescheduled, and prints as a statement to send. Follow the late shipment →
Drag the delivery later, and watch what the supplier owes
The clause: 0.75% of the late goods’ value for every week late, after seven days’ grace, never more than 3%. At 28 days late that is 21 days past the grace period, three weeks, 2.25%: 33,260.22 SAR. From 35 days late the 3% cap applies, and the supplier owes no more however late it gets.
Each week past the grace period adds 0.75% of the value of the late goods.
Why one view matters
A small wobble at the shop becomes a flood at the factory.
A supply chain is a line of businesses, each buying from the next. Each one sees only the orders in front of it, and each adds a little extra to be safe. By the time a small change in what customers buy reaches the factory, it has grown into a huge one. This is the bullwhip effect, first studied at MIT in the 1960s.
The cure is not a smarter rule. It is letting everyone see the same numbers: real demand, real stock, real orders on the way.
Switch between the two views, and change how nervous everyone is.
In Procurement Control Tower, stock, open customer orders and open purchase orders sit on one screen, read straight from the reports the company’s ERP already produces. What it reads, and what it never writes →
Customers buy half as much again. What does the factory hear?
This is a game when JavaScript is on. Customers go from 10 a week to 15 and stay there. When each business sees only the orders from the one below it, the factory at the far end is asked for 84 in one week: more than eight times normal. When everyone sees what customers actually bought, the factory’s worst week is 28.
Customers wanted at most 15 a week. The factory was asked for 84 in one week, 8.4× normal, and later for almost nothing, as everyone finds they have too much.
Every business follows the same sensible rule: order what you expect to sell, plus enough to top your stock back up. Nobody panics. The swing comes from each one reacting to the orders in front of it rather than to what customers bought.
What you now know
Four ideas a buyer uses every week.
Each one lights up when you finish its game. Together they are most of what a procurement team argues about on a Monday morning.
- When to orderOrder at the reorder point, not when it is empty.Usage during the lead time, plus a buffer for a busy week.
- What it costsCompare suppliers landed, not quoted.Freight, duty and the rest of the journey can reverse the ranking.
- When it is lateA delay has a price the contract already set.Grace first, then a rate per week, up to a cap.
- Why one view mattersSmall changes grow along a chain.Seeing real demand, not just the next order, keeps the swings small.
The words
The vocabulary, in plain English.
Every dotted word on this site opens one of these. Here they all are, in the order you are likely to meet them.
- Procurement
- Buying what a business needs to run: finding suppliers, agreeing prices and terms, placing orders and making sure the goods arrive.
- Direct materials
- The parts and raw materials that go into what a company makes or sells, as opposed to things it uses itself, like office supplies.
- Supply chain
- Every step between raw material and customer: suppliers, factories, ships, warehouses, shops, and the orders passed between them.
- SKU (part)
- Stock-keeping unit. One distinct item a business stocks, such as one part in one size.
- ERP
- Enterprise resource planning: the company's main record of stock, orders, invoices and accounts. SAP, Oracle and Microsoft Dynamics are ERPs.
- Demand
- How much of something customers or production will need, and when.
- Lead time
- How long it takes from placing an order to having the goods on your shelf.
- Stock cover
- How long the stock you hold will last at the rate you use it, usually in days or months.
- Reorder point
- The stock level at which you order again, so the new stock arrives before the old runs out. Usage during the lead time, plus safety stock.
- Safety stock
- Extra stock held back for when demand is higher, or a delivery slower, than expected.
- Stockout
- Running out. Orders wait, production stops, or customers buy elsewhere.
- RFQ
- Request for quotation: asking several suppliers to price the same requirement on the same terms, so the answers can be compared.
- Quotation
- A supplier's offer: price, currency, quantity, delivery terms, and how long the offer stands.
- Incoterms
- Standard three-letter trade terms such as EXW, FOB and DDP that say where the supplier's costs and risks end and the buyer's begin.
- Freight
- The cost of transporting goods, by sea, air or road.
- Import duty
- A tax charged by the importing country when goods cross its border, usually a percentage of their value.
- Landed cost
- Everything it costs to get goods onto your warehouse floor: the price plus freight, insurance, duty, port charges and local transport.
- Award
- The decision on which supplier, or suppliers, get the order, and the reason for it.
- Purchase order (PO)
- The formal order sent to a supplier: what, how many, at what price, and by when.
- Expediting
- Following up with suppliers so orders arrive as promised, and finding out early when they will not.
- Liquidated damages
- An amount agreed in the contract in advance that a supplier owes for each period of delay, usually after a grace period and up to a cap.
- Bullwhip effect
- How a small change in what customers buy grows into ever larger swings in orders further back along the supply chain.
- OTIF
- On time, in full: the share of deliveries that arrive when promised and in the quantity ordered.
Now see the same four ideas doing real work.
One purchase, followed from the stock warning that raised it to the late-delivery claim that closed it, on the real product’s screens.