Aim for ef­fi­ciency in the or­der­ing ad­min­is­tra­tion

New Straits Times - - Business -

PUR­CHAS­ING is re­ceiv­ing an in­creas­ing amount of at­ten­tion from the top man­age­ment as it has more im­pact on prof­itabil­ity and sup­ply chain per­for­mance than other de­part­ments. The process con­sists of six steps: spec­i­fi­ca­tion, sup­plier se­lec­tion, con­tract­ing, or­der­ing, ex­pe­dit­ing and fol­low-up. To­day, we fo­cus on the fourth step: or­der­ing.

Af­ter a con­tract is in place, it is ex­e­cuted through or­der­ing the prod­uct, ser­vice or work from the sup­plier in ac­cor­dance with the con­di­tions agreed upon in the con­tract. In the case of a one-off pur­chase, the con­tract is the ac­tual pur­chase order.

How do you make sure you get the right things, in the right con­di­tion, at the right time and in the right place?

A pur­chase order is usu­ally ini­ti­ated through a pur­chase order req­ui­si­tion or ma­te­ri­als req­ui­si­tion. In a pro­duc­tion en­vi­ron­ment, this is gen­er­ated through the ma­te­ri­als re­quire­ments plan­ning sys­tem, which asks what vol­umes are needed for pro­duc­tion over a spe­cific pe­riod given ex­ist­ing in­ven­tory lev­els.

There are dif­fer­ent or­der­ing meth­ods: stock sourc­ing, de­mand tai­lored sourc­ing and justin-time (JIT) sourc­ing. In stock­sourc­ing, the buyer main­tains stock and the sup­plier may main­tain stock as well. This or­der­ing sys­tem is nor­mally used for repet­i­tive needs and/or prod­ucts of low value.

De­mand tai­lored sourc­ing is used for in­ci­den­tal high value items. In this or­der­ing sys­tem, the buyer tries to avoid hold­ing stock, while the sup­plier holds cen­tral stock.

JIT sourc­ing is used for high­value and pre­dictable de­mand. In this or­der­ing sys­tem, both buyer and sup­plier have no stock, in the­ory. How­ever, as pro­duc­tion lead-times of cer­tain items are long, the sup­plier or the sup­plier of the sup­plier may be the one hold­ing stock.

When or­der­ing from a sup­plier, it is very im­por­tant to be pre­cise about in­struc­tions to them. Gen­er­ally, a pur­chase order will in­clude the fol­low­ing in­for­ma­tion: order num­ber, prod­uct de­scrip­tion, unit price, num­ber of units re­quired, ex­pected de­liv­ery time or date, de­liv­ery and in­voic­ing ad­dress and han­dling in­struc­tions (such as ha­lal lo­gis­tics, tem­per­a­ture range, etc).


The or­der­ing ad­min­is­tra­tion might be quite costly, due to the cost per in­voice and high num­ber of in­voices. Cut­ting the cost per in­voice can be achieved by elim­i­nat­ing re­dun­dant ac­tiv­i­ties, pro­cesses, and pa­per­work. E-or­der­ing via on­line cat­a­logue and pur­chase cards (P-cards) fur­ther sim­plify ad­min­is­tra­tion of an order.

P-cards are used for fre­quent pur­chases of low-value items, like sta­tion­ar­ies. Pay­ment is taken over by credit card com­pa­nies, re­sult­ing in monthly billing. The or­gan­i­sa­tion pays a small amount per card, but har­vests ma­jor ad­min­is­tra­tive cost sav­ings.

A lot of in­voices can be the re­sult of a lot of one-time in­voices; a lot of in­voices per sup­plier and sep­a­rate in­voices per depart­ment. The num­ber of in­voices can be re­duced. If you have fewer sup­pli­ers, you have fewer in­voices. Cut the num­ber of sup­pli­ers for prod­uct cat­e­gories that can be eas­ily sourced lo­cally.

Sec­ond, the con­tract terms should spec­ify the method of in­voic­ing, fre­quency of in­voic­ing, and con­sol­i­da­tion among de­part­ments. Send­ing one in­voice per month is cheaper to ad­min­is­ter com­pared with 20 in­voices per month from that same sup­plier.

As var­i­ous users in the or­gan­i­sa­tion have the au­thor­ity to order from con­tracted sup­pli­ers, ed­u­cat­ing these users is im­por­tant in order to limit the num­ber of in­voices sent. In short, ob­tain­ing ef­fi­ciency is of key im­por­tance in or­der­ing.

marco@lb­bin­ter­na­ The writer is founder and CEO of LBB In­ter­na­tional, the lo­gis­tics con­sult­ing and re­search firm that spe­cialises in agri-food sup­ply chains, in­dus­trial lo­gis­tics and third-party lo­gis­tics. LBB pro­vides lo­gis­tics di­ag­nos­tics, sup­ply chain de­sign and so­lu­tions and mar­ket re­search in Asia, Europe and the Mid­dle East.

Cut­ting the cost per in­voice can be achieved by elim­i­nat­ing re­dun­dant ac­tiv­i­ties, pro­cesses, and pa­per­work. Eorder­ing via on­line cat­a­logue and pur­chase cards (P-cards) fur­ther sim­plify ad­min­is­tra­tion of an order.

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