Effective follow-ups provide continuous improvement
PURCHASING is receiving increasing attention by top management as it has more impact on the profitability and supply chain performance than any other department.
The purchasing process consists of six steps: specification, supplier selection, contracting, ordering, expediting and followup. Today we expand upon the last step: follow-up.
The product, service or works have already been received and accepted by the internal customer in the previous expediting process step. Therefore, the supplier has completed his work and will, according to the contract, send an invoice, which the credit department will then verify before making payment to the supplier. So, what other work still needs to be done by purchasing?
Indeed, quite a number of activities fall under follow-up. Possible tasks related to the followup are the settling of warranty claims, penalty clauses, cost escalation clauses (related to, for example currency or petrol prices), more or less work than stated in the contract specifications, but also the management of all related purchasing documentation, project evaluations and supervising compliance with agreements concerning spare parts and maintenance.
Spare parts and maintenance are, for many businesses, crucial to ensuring uptime of equipment and continuity of operations. Therefore, supplier control is mission critical for these activities, and certainly an integral component of supplier performance.
It is important to have a thorough and up-to-date record of the current capabilities of each supplier, which would be a major contribution of purchasing.
Experiences with and performance of suppliers should be documented in a vendor rating system. You could mark suppliers as A (good supplier), B (reasonable supplier, but not without problems), or C (do not conduct new business with this supplier).
This is done for important suppliers to simplify future supplier selection. It also allows the organisation to reduce the supplier base and improve supplier relations. Do not forget to conduct exit discussions with C suppliers, as this can provide valuable information for the company to improve their operations.
The follow-up step entails the necessary aftercare and critical evaluation in purchasing, addressing both the supplier as well as the internal organisation. It is unfortunate that companies pay little attention to this last step in purchasing.
Staff involved in purchasing are often too involved with solving today’s problems and forget that they endured identical situations in the past. You can learn a lot from your supplier.
Second, a poor performance by a supplier can also be the result of your own internal processes and procedures. In other words: an opportunity to learn.
The follow-up step concludes the purchasing process or purchasing cycle. The information gathered from follow-up provides input to the next purchasing cycle to assemble a short list of possible suppliers for future products, services and works.
Every step in the purchasing process must be executed correctly, consistently, completely and clearly to provide the internal customer with what he exactly needs: a product-serviceworks which meets the specifications of the user, on time, in full and at reasonable total costs.
The six purchasing steps are fundamental steps to master well in your organisation, giving you the tools for effective supplier relationship management, purchasing process excellence, and anchor continuous improvement.
The followup step entails the necessary aftercare and critical evaluation in purchasing, addressing both the supplier as well as the internal organisation.