Should You Have A Code Of Practice For Your Supply Chain Staff?

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Whilst most supply chain departments will have key transactional process and activity flows documented in some manner – one significant aspect of the purchasing function that is often overlooked is a code of practice. So do you need a code of practice for your supply chain staff? The short answer to this question is ‘Yes’ – whilst you may have activities documented the code of practice describes the policies and procedures for how individuals conduct themselves and manage key relationships as part of their day to day responsibilities.

A Code of Practice is not something that will radically transform the operation of the supply chain, but it will help people to be aware that they have responsibilities, wherever they are in the supply chain and the Code will help them to know what these responsibilities are. It also acts as a convenient way of introducing ethics and business standards into a document that will be read by everyone within the supply chain.
But what should be included in the code of practice? The Code of Practice should clearly guide staff as to the standards expected of everyone within the supply chain and include elements such as:

Relationships

The code of practice should explain how relationships with suppliers and other stakeholders will be managed and maintained in a fair and equitable way – for example only soliciting quotations when there is a requirement – having fair guidelines (for example evaluating suppliers), policies on anti-discrimination (between size of supplier, location etc), rules on dual sourcing.

Standards

The code of practice should also ensure that the personnel within the supply chain function operate to certain ethical standards. For example not accepting inappropriate gifts or hospitality and to what extent to maintain relationships with key personnel within the suppliers used.

Ethics & Professionalism

Most businesses expect high ethical and professional standards from their employees – this typically covers – fairness, objectivity, honesty. Staff can also be reminded that they need to be wholly open and honest throughout all aspects of the supply chain and they need to be open about any relationships that they may have, which could potentially have an impact or influence.

Legal aspects

The code of conduct should describe how the appropriate laws/governance apply to thier activities and how disputes should be managed and co-ordinated.

Care of process

Team members should be aware of how their tasks inter-relate with other parts of the business and – thus ensuring that key activities are carried out in a timely and effective manner. The Code of Practice should also remind people involved in the supply chain that they should provide information in a manner that is timely, accurate and ensures confidentiality.

Summary

The Code of conduct is an important document within the supply chain policies and procedures. It demonstrates that the supply chain function takes its responsibilities seriously.

Request for quote process

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The purpose for using the Request for Quote (RFQ) Process is to obtain price and availability information of product from either a single or range of suppliers. The RFQ process typically targets two activities

* Establishing a part – supplier – price – relationship
* Obtaining Value for Money through running RFQ through multiple vendors.

The RFQ process however is often bureaucratic – a typically non-automated process it can attract substantial overhead in its administration coupled with the evaluation of responses. This is especially true for organizations which manage substantial volumes of parts. If the market lacks price and availability instability the value add for the process is often questionable.

A common issue is that the RFQ process is utilized on established (and long term) runner repeater product where there is no need (i.e. supplier relationships and price/lead-time criteria is already well established) and the costs of the RFQ process outweigh the benefits found by competing the part. It’s not uncommon to find that despite numerous suppliers being tendered the part is always procured from the same one at the same price.

So why is the RFQ process used in these cases? The RFQ process is utilized in these processes because

• The previous quotation validity has expired
• Perceived variability in price and lead-time

Example Request for Quotation (RFQ) Process

A Typical RFQ process will include a variety of steps such as:

• Obtaining a Specification of the product to be bought
• Sourcing suppliers
• Producing and communicating a RFQ document which is typically built up of a
o Statement of requirement
o Applicable Terms and Conditions of Purchase
• Expediting suppliers for return of information
• Evaluation of responses and selection of source of supply
• Approvals

The Criteria for evaluating the responses is typically defined through analysis of price, lead-time and compliance against specification – different organizations may place particular weighting on an individual facet (often price!). Other aspects may also come into play such as payment terms and quality releases.

Given that the process can attract administrative cost there is a need to ensure the process is both efficient and only used as required (such as for stranger product or where supplier relationships are not established). This can be supported by a methodology deployed with the buyer and a focus on developing a long term supplier strategy when known.

Establishing long term agreements with suppliers with fixed pricing can often negate the need for an RFQ process – this establishes a long term pricing model and dictates terms and conditions – the downside of this approach is that it does reduce flexibility and can miss out on beneficial pricing adjustments in the market.

In order to mitigate the administrative overhead many organizations automate the process relying on e-procurement software and enabling workflow – this can provide all the benefits of a RFQ process but with much reduced overhead (although there is a reliance on technology which may or may not be present). The downside for this is that it relies on established rules (i.e. commodity structures) and again can’t cope with stranger product.

In most organizations the RFQ process is a necessary evil – commodity led organizations that procure raw material often have a requirement to verify pricing and or lead-time and despite common methods to move towards longer term agreements the RFQ process usually remains in some guise – it’s therefore necessary to ensure that the process is efficient and human intervention is minimized.