Most operational supply chain issues fall into a few clear categories that, when approached in an orderly way, do not require drastic measures to solve. Our Supply Chain Issues series explores each of these categories and provides hands-on solutions for key decision-makers. To read the entire series please click here.
Why is purchase order visibility no longer just a thought, but a required reality?
At the heart of every business is the need to keep customers satisfied. This is extremely difficult to achieve, especially for supply chain leaders and their teams. They are challenged with competing interests and are equipped with insufficient resources and tools that make it impossible to work efficiently and focus on value-adding tasks. Too often:
- Purchasing and logistics functions are not centralized but rather handled by different teams in several geographies.
- The purchase order is at best a tangible financial record that is not linked and integrated into digital supply chain management and execution processes.
- The global partner network of product suppliers and logistics providers are disconnected, as each uses legacy systems that have limited insights and connectivity.
Despite supply chain leaders and teams working diligently to improve lead-time performance, hold vendors accountable and reduce risk, many of them feel like Don Quixote fighting the windmills.
Why is a manual purchase order management process challenging?
Although digital transformations of supply chains are in full swing, most companies, large or small, still rely on manual and disconnected processes to manage their purchase orders and vendor performance. In this, the most pressing challenges supply chain teams face are the following:
Manual placement of purchase orders
Placing purchase orders is an administrative piece of the business that is time and labour-intensive when using faxes, emails and phone calls. These tedious tasks and processes, that do not drive value for a company, are prone to error and lead to poor administrative processes.
Poor visibility of purchase order status
Most supply chain teams still use spreadsheets, emails and phone calls to find answers to fundamental questions, like:
- Has the purchase order been received by my vendor?
- Will the quantity required be produced and shipped out on-time to fulfill my demand?
- When will the purchase order be ready for shipment?
- On which truck or container is my purchase order and when will the shipment arrive at the point of destination?
Poor visibility and manual processes make it nearly impossible for supply chain teams to promptly identify delays, disruptions, or discrepancies. Rather than proactively anticipating issues and creating contingency plans, supply chain teams invest their time in responding to items as they arise.
Poor visibility of vendor performance
Purchase orders and vendor performance work in tandem, where it is likely that if one functions with low visibility then both are not managed to their full potential. For instance, companies may not know which vendor delivers on time, without errors, and at the agreed cost. At the very least, they may not have factual, complete, readily accessible data to measure KPIs and hold vendors accountable.
What are the risks of managing purchase orders manually?
Risks can be categorized as either order or supplier-specific.
Order-specific risks include late shipment arrival or goods not meeting quality standards, thereby causing disruptions to the supply chain, such as:
- Additional costs incurred from expedited or air cargo shipments to cover depleted stock levels or production demand.
- Additional detention and demurrage costs are incurred if the finance department is not given sufficient advance notice to release payment.
- Potential of damaging customer relationships due to unavailable stock, late or damaged shipments.
Supplier-specific risks include the failure to identify potential supplier risks, such as regulatory breaches, fraud, data security failures and a loss of intellectual property. This can occur when supply chain teams have poor visibility of their supplier processes and performance.
What are the solutions to increase purchase order visibility and the benefits?
Traditional practices and processes for managing purchase orders based on manual spreadsheets, phone calls, and emails have served as the industry standard for decades. However, as environmental issues such as natural disasters or pandemics continue to disrupt global supply chains, companies are turning to digital tools and solutions to eradicate risks and inefficiencies in their operations and supply chain.
McKinsey estimates that 41% of current place and receive order tasks can be automated, and that this percentage may soon double.
To automate purchase order processes and increase visibility on the status of your purchase orders, a business should:
- Fully understand and record all employee activities and steps required to place an order with your vendors until the order is received incl. how the communication with the vendor works and how information is shared
- Select and implement a cloud-based PO management system that is integrated with your ERP system to digitalize and automate non-value-adding activities and steps. This allows you to have full visibility and control over your purchase orders in one system.
- Further, deploying a visibility platform that is not only connected with your PO management system but with all other parties in your supply chain to create a single source of truth across the entire supply chain network.
Looking broader across the whole procurement function, Accenture sees that the adoption of mass digital technologies will create a new operating model, eventually leading to a reduction of operational expenses by 40 to 50%; with potential of further savings when providers and internal silos are broken down. With the right partner who has both the technology and supply chain expertise to fully understand your business, scalable efficiencies can be achieved in a timely manner.