TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
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When your supply chain experiences a break down, the response is reactive. Simply put, the gap between reactive and proactive supply chain management designs comes down to one factor: timing. If certain events and situations have triggered such a review of your supply chain dynamics, then you are operating on a reactive management scheme. The concept behind a reactive management strategy is that by examining the big picture of the whole system, you can detect problems before they become crucial, allowing you time to develop a more reactive plan for addressing the issues. For instance, if your business starts experiencing increased inventory but no sales, the root cause may be that the supplier that supplied you with the excess inventory suddenly decides to reduce their orders - a situation which you could have easily anticipated and solved yourself in the early stages of the problem, thus preventing the issue from becoming a crisis.

On the other hand, if your business suddenly experiences lower inventory but higher sales, then you are operating on a proactive management scheme. The difference between the two? In the case of the proactive strategy, the objective is to prevent the outbreak of a problem before it becomes crucial. In the case of reactive management, the aim is to deal with the inventory issues only after the problem has developed into something more serious, thus enabling the company to deal with the variability and risk that goes along with variable quantity control (VAC) - a complex process designed to minimize variability across the whole enterprise.

Both approaches, reactive and proactive, share common characteristics: they both involve controlling the number and type of goods that are acquired and/or sold, monitoring seasonal trends and changing consumer preferences, and devising and executing strategies that help control costs and prices. And both require rigorous analysis, precise forecasts, and the integration of financial tools. However, although both management styles share these characteristics, they also differ in their fundamental approach. Reactive procurement tries to purchase as much as possible at the lowest prices and then pass the cost savings through to the customer. The problem with this approach is that goods don't get replaced, inventory doesn't get replenished, and customers don't get quality replacement products. Therefore, the goal is to make the best use of all available resources while minimizing total cost - which, of course, is not an easy task when the firm has a large number of products to purchase and re-supply.

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