The Purchase Order Process – Stage 2 after the Purchase Order

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The purchasing process is perhaps typified by the activity of raising a purchase order – the document that tells the supplier I want this item and I want it delivered at this time. In the wrong hands, purchasing processes can be complicated and bureaucratic with intricate exchanges of information and authorization requirements. Getting to the point of raising an order and getting signed of can in some extreme examples feel like you’ve run a marathon! But as most buyers will tell you, once the purchase order has been released that is not the end of the story. What happens after the order being dispatched is as crucial, in many ways to getting the order raised in the first place.

Order Acknowledgements

An order acknowledgement is a document that is raised by the seller upon receipt of your purchase order – it signifies acceptance of your order (maybe with caveats if documented). If you had any specific commercial requirements check acknowledgements carefully as it is common practice for companies to issue acknowledgements subject to their own terms and conditions rather than the buyers!

Order acknowledgements mean

• You have a contract in place
• The supplier has my order

Its commonplace for buyers to be responsible for chasing order acknowledgements from their suppliers.

Order Amendments

Remembering that the purchase order, when acknowledged/accepted represents a formal contract between the buyer and seller, changes should not be taken lightly – however – amendments are a common example of what can occur following the purchase order being raised. Examples include:

• The buyer requires a greater quantity of parts
• The Buyer requires different parts
• The buyer requires commercial changes

Where it is decided that a new order will not be raised – amendments to an existing outstanding order will take place (but will require additional order acknowledgements from the supplier).

Expediting

One of the most common tasks is in chasing parts due delivery. Complex, mission critical parts may require a close level of planning and communications between the buyer and seller to ensure that items remain on program. In severe cases – day plans may be instigated tracking each step of the manufacturing and logistics process to ensure that the part is meeting its lead time – highlighting an early stage where parts may not be delivered to schedule.

Rescheduling

In some cases where business needs necessitate order schedules may be amended – this may be pushing requirement out to a later delivery date – or conversely – bringing the item forward. This will typically be administered in close consultation with the supplier to ensure that the revised schedule can be achieved.

Summary

Various tasks should be undertaken following issuance of the purchase order. Many of these tasks are carried out by the same buyer that raised the order – with some tasks crucial to ensure problem free continuity of supply.

The role of commodity buying teams

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If you consider that a typical organization (manufacturing or service provider ) may procure thousands of different products and services to support the creation/manufacture of its own product – then it would be sensible to consider that a free for all procurement approach (buy anything from anywhere) would not drive down cost – so what could the answer be? The answer for many organizations is commodity management.

What is a commodity?

The process of developing a segmented approach to procurement is known as commodity management. Commodity management is the categorization of individual parts, products and suppliers into groups known as commodities. There are various goals of commodity management – but commonly it targets to:

1/ Provide a method of spend analysis and aggregation
2/ Develop insight into the market
3/ Meet business targets on cost, delivery and quality

Examples of commodities

While there is no hard and fast rules of how you group your spend there are common commodities categories that are utilized within industry – these include

1/ Electronics
2/ Fabrication
3/ Raw Materials
4/ Stationery
5/ Bearings
6/ Chemicals

Implementing commodity management

Organizations that choose to adopt commodity management will typically structure their procurement organization into teams (mirroring the commodities managed) these teams will have responsibility for analyzing spend and developing and deploying an appropriate strategy for sourcing, supplier management and spend profiles

Need for analysis

Robust data is required to support commodity management – this is typically the same data used in a spend analysis system – in that you need to know as a minimum by supplier (and in some cases by part) the spend and demand profile. Coupled with this there may also need to be some requirements gathering to ensure that the completed commodity strategy meets the needs of business in terms of future needs, QCD requirements and other non price related variables.

Need for specialist commodity managers

Given how spend is grouped into commodities – many organizations choose to recruit specialist commodity managers who are likely to have specific expertise in that field for example
• Product knowledge
• Supplier knowledge
• Market knowledge

This is especially true of complex commodities such as electronics. A commodity manager may lead the strategic aspects of the purchasing function for that group.

Summary

For medium to large sized organizations commodity management is commonplace. It helps to segment spend allowing the supporting teams to develop focused strategies and develop key skills and knowledge for their niche. While often used as a cost reduction tool – commodity management can drive a range of improvements to a previously fragmented supply chain not least risk reduction through continuity of supply.

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