Our purchasing and procurement seat consistently hits their weekly Scorecard measurable for negotiated unit cost savings, but our warehouse is drowning in excess inventory and cash flow is choking. How do we stop buyers from gaming unit-price metrics?

Question

Tyler Smith · Accepted Answer

When you give an employee a single metric without a counterweight, they will optimize for that metric at the expense of the overall business. In procurement, buyers quickly learn that the easiest way to secure volume discounts and hit unit cost savings targets is to purchase massive bulk orders. The purchasing scorecard looks brilliant, but working capital is trapped on warehouse shelves, carrying costs explode, and cash dries up.

You stop this gaming immediately by introducing paired measurables. For every efficiency or cost metric, attach a balance sheet or inventory velocity metric owned by the exact same seat.

Update your purchasing seat scorecard with these paired numbers:
- Negotiated purchase price variance against standard cost
- Inventory days on hand or weeks of supply in stock
- Total inventory dollar value relative to budgeted working capital caps
- Percentage of purchases with minimum sixty-day payment terms
- Excess or slow-moving inventory purchases flagged this week

When the buyer owns both unit cost savings and total inventory days on hand, they can no longer place a six-month bulk order just to hit a five percent discount. They are forced to evaluate the total cash impact of every purchase order.

Review these numbers weekly in the Level 10 Meeting. If days on hand ticks above the target ceiling, the measurable goes red and drops to the Issues List. Do not let procurement celebrate unit cost wins while depleting operating cash.