In our earlier article, we talked about understanding and leveraging various dates available in the customer order management side of your supply chain. If these are not properly understood and used, then priorities are difficult to understand (or even, discover) and the “every order is a priority” chaos may rule the day.
Furthermore, we discussed how having accurate date information regarding supply chain commitments on the outbound side (e.g., customer requested date, your promised date, and the necessary scheduled shipping date) also allows your firm to construct and use meaningful KPIs (key performance indicators) regarding performance, as well as your improvement over time.
This time we will discuss how disciplined use of dates on the inbound side of your supply chain can be valuable in your management and improvement efforts, as well.
Requested versus promised
Most purchase order management applications found in ERP systems facilitate your company’s ability to capture vendor performance metrics in a variety of ways. However, for most of these metrics, it all begins with assuring that accurate data is a part of the original purchase order at the time it is issued to your supplier.
NOTE: We have taken the accompanying figure from Sage 500 ERP, but most purchase order management systems within the ERP context offer something similar.
Unfortunately, when I am introduced to many clients that are seeking to improve, I discover that most of their buyers pay no attention to these dates at the time of purchase order creation. By “no attention,” I mean to say, they simply take whatever dates default into such data fields and take no action to correct or adjust them in a way that would make these date data accurate and meaningful.
All too frequently, purchase orders are routinely released to suppliers with no commitment from the supplier at all regarding a “promised” delivery date.
Without capturing your own firm’s actual “requested” date—the date you are asking the vendor to deliver the goods to your location—and, if different, the vendor’s counter-offer as to the date the vendor expects actually to be able to deliver the goods to your location, these dates are meaningless. And, if these dates are meaningless, then so is any metric your firm might wish to employ.
It might be very helpful to know, for example, that for the same SKU:
- Vendor A can and does meet our “requested” date 89 percent of the time
- Vendor B can and does meet our “requested” date only 41 percent of the time
- Vendor C always promises to meet our “requested” date, but actually delivers seven to ten days late 100 percent of the time
Proactively managing your inbound supply chain
You do not want your supply chain management and execution systems to overload your buyers and managers with too much data. Instead, one excellent approach is to take the total lead-time (i.e., the purchase order release date to the promised date) and divide it into thirds. Then, take the final third of the lead-time and subdivide it into three equal parts. These parts will be designated as the “green zone”, the “yellow zone” and the “red zone.”
During the first two-thirds (the “white zone,” if you want to call it that) of the total lead-time, these purchased items really don’t need to be on the radar of your supply chain management team. However, once a PO line enters the green zone, it should appear in a visual tracking system of some kind.
While in the “green zone,” typically no action need be taken. However, when an PO line enters the “yellow zone,” someone on the team should take note and, perhaps, confirm with the vendor that the order is still on-track to meet their “promised” date.
As the order enters the red zone, a supply chain manager should ascertain the impact this order might have on end-products, customers, manufacturing schedules, and so forth. This will help the supply chain management team determine what actions should be taken to expedite the inbound order, reschedule manufacturing steps that might be affected, or notify customers of potential delays. We emphasize that this should be a collaborative decision-making and action-taking process that involves folks from across the organization that may be involved in or affected by resulting decisions and actions.
By the way, this concept was adapted from Ptak, Carol A., Chad Smith, and Joseph Orlicky. Orlicky's Material Requirements Planning. Third ed. New York: McGraw-Hill.
Real data for performance metrics and your POOGI
With real and realistic dates in your purchase order history for Requested dates and Promised dates, you are now prepared to see how your enterprise is performing and improving. You will be much better situated to understand and measure your performance and improvement over time for
- Being able to rely on “promise dates” made by your suppliers
- Knowing which suppliers are most likely able to actually deliver specific products within a specified lead-time if a purchase order is released today
- Improve your expediting effectiveness, when expediting becomes necessary
With meaningless dates in your purchase order management system, however, there is no way to understand your vendors’ performance or what needs to improve. Start by gathering meaningful dates by which to compare your vendors’ actual performance.
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