The Procurement Balancing Act: How to Stop Stock from Draining Your Cash While Keeping Sales Alive
If you’ve ever felt like your warehouse was doubling as a museum of forgotten stock, you’re not alone.
In every manufacturing, construction, and wholesale business I’ve worked with, procurement is one of the trickiest roles to get right. Your procurement manager sits at the crossroads of operations, finance, and sales. They’ve got one foot in “make sure we’ve always got what we need” and the other in “don’t spend the last of our cash buying pallets of stuff we won’t use for months.”
That tension is the heart of procurement management — and if you don’t measure it properly, it can bleed your business dry.
IN THIS ARTICLE:
→ The Old KPIs: Useful, but Dangerous on Their Own
→ COGS The “New KPI” That Brings Balance Back
→ A Simple Example
→ Benchmarking the First Part of the Equation
→ Why Procurement Isn’t an Island
→ Wrapping It Up
The Old KPIs: Useful, but Dangerous on Their Own
When we talk procurement performance, most businesses lean on two common KPIs:
-
Fill Rate
This measures the percentage of orders you can fulfil from existing stock. A 98% fill rate sounds fantastic, right? Until you realise it might mean your procurement manager bought mountains of stock “just in case.” Great for sales in the short term, but terrible for cash flow. -
Days in Stock
This tracks how long raw materials or products sit in your warehouse before they’re used or sold. Keep it too high, and you’ve got capital locked up in dead inventory. Keep it too low, and suddenly you’re scrambling to meet demand with empty shelves.
Both KPIs have merit — but taken to the extreme, they push procurement managers into dangerous habits. One chases high fill rates and builds a stock museum. The other chases short stock days and leaves operations short.
So how do you find the balance?
The “New KPI” That Brings Balance Back
A client recently shared a brilliant idea in one of our finance meetings: combine the two measures into a single, balanced KPI.
Here’s how it works:
- Monthly Sales ÷ Total Stock
This shows how efficiently stock is being held relative to sales. - Actual Revenue ÷ Budgeted Revenue
This shows whether procurement is enabling the business to meet or exceed sales expectations. - Add the Two Percentages Together and Divide by 2
This final figure gives you a balanced score. High enough to keep sales humming, but disciplined enough not to flood the warehouse with cash-draining stock.
A Simple Example
Let’s say:
Monthly Sales = $1,000,000
Stock on Hand = $1,500,000
Budgeted Sales = $750,000
Step 1: $1,000,000 ÷ $1,500,000 = 66%
Step 2: $1,000,000 ÷ $750,000 = 133%
Step 3: (66% + 133%) ÷ 2 = 100%
That final KPI number (100% in this example) shows procurement isn’t just about keeping stock levels low or hitting fill rates. It’s about fuelling sales while protecting cash.
Benchmarking the First Part of the Equation
Not every business will have the same “ideal” ratio for sales versus stock. You need to consider:
Import vs Local Supply: Import-heavy businesses will naturally hold stock longer (sometimes 150+ days) due to shipping lead times. Local suppliers allow you to turn stock faster (maybe 60–90 days).
Gross Profit Margin: Businesses with higher contribution margins need less stock relative to sales. Lower-margin businesses are more stock-reliant.
Think of it this way:
If your margin is 60%, only 40 cents of every sales dollar is stock.
If your margin is 40%, then 60 cents of every sales dollar has already been through your warehouse.
So the right benchmark depends on your business model.
Why Procurement Isn’t an Island
One of the biggest mindset shifts is realising procurement does influence sales.
No stock = no sales.
Too much stock = no cash.
Procurement and sales are interdependent. Operations, finance, procurement, and sales all live in the same ecosystem. No department can pretend to be an island — they either help each other grow or they pull each other down.
Wrapping It Up
Procurement management is a balancing act. Lean too far one way, and you’ve got a warehouse stuffed with cash you can’t use. Lean too far the other, and you’re losing sales because the shelves are bare.
By combining:
Monthly Sales ÷ Stock, and
Actual ÷ Budgeted Sales,
…you build a KPI that forces procurement managers to walk the tightrope the right way: supporting operations, protecting cash, and fuelling growth.
The next time you’re in a finance meeting and debating fill rates or stock days, throw this KPI into the mix. You’ll find it reframes the whole conversation — and maybe saves your warehouse from becoming the next stock museum.
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