Daily Archives: August 4, 2010

Supplier Partnerships

Today’s post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the supply management best seller Straight to the Bottom Line.

A supplier representative visits your offices and begins to talk about “the partnership” between your two firms. You hadn’t realized the relationship was that comprehensive, so you ask him to describe the exact nature of this partnership. Chances are that the answer you receive will be rather wordy and nonspecific, about what you would expect from a “glad-handing salesperson.”

“Partnership” is one of the most overused and misused terms in the world of business. When I was a CPO, we dealt with this phenomenon by taking two steps:

(1) our Procurement Council developed a written definition of what we meant by the term “supplier partnership”

(2) once we had that definition, we decided how to put it to good use to improve both our internal and our external processes

If you’ve never done the exercise of developing your own written definition of supplier partnerships, I would encourage you to do so. It has several benefits. It will help you organize your ideas about this important subject. Also, you can create a common understanding within your company regarding what the partnership term means and how it should fit into your overall supplier selection and management process. And finally, it can serve as an excellent point of discussion with your suppliers — especially those who say they want to become your partner.

We did this in my corporate career as a CPO, with real benefits. We went so far as to print our short definition of supplier partnerships on the back of our business cards. When meeting a supplier for the first time, we pointed out the definition on the back of the cards and used this as a launching point for a discussion that often proved to be very meaningful.

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Thanks, Bob!

A Hitchhiker’s Guide to e-Procurement: Reconciliation, Part I

Mostly Harmless, Part XII

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Reconciliation is the process of comparing and matching figures from the accounting records of one system with the accounting records of another system. In e-Procurement, it generally refers to the reconciliation of the invoice and associated payments against goods receipts, purchase orders, contracts, and / or tax records.

While reconciliation should be done at each step of the process — as the purchase order should be matched against the approval and a contract, the goods receipt against the purchase order(s), and the invoice against the goods receipt(s) and the purchase order(s), there should be a separate, (semi-)manual reconciliation phase as not everything can be reconciled automatically and there will always be new situations and exceptions not accounted for in the automatic rules.

If there is an error in a SKU or other identifying attribute, it may not be possible to automatically match one or more invoice line items against the purchase order(s) they correspond to. In this situation, the e-Procurement system would flag the invoice for manual review, at which point the individual who (first) processed the invoice would do a manual match. If the amount is significant, this match should be rechecked at a later time, because if there were two similar items in the procurement system (catalogs) and the match was made to the wrong, off-contract item, the organization might end up paying a higher price.

A review should also be made of all purchases against a supplier’s account for which there are no contract prices if there are contracts in place with the supplier. For example, a contract with an electronics vendor might be such that the organization gets 10% off of list price for all items for which a contract price is not specified or that the organization gets 15% off of all purchases once it has purchased One Million Dollars worth of goods and services. These situations may not be caught by the system automatically as it might not be easy to encode which goods or services are covered, especially if items are being ordered / purchased not yet in the system.

In addition, a review should be made of all tax payments. Is the tax rate correct? Are the items being taxed subject to taxation? Is the organization exempt? Is the organization eligible to recover some of the payments (such as GST in Canada)? This is a difficult subject and a manual review will be required to ensure that the right taxes are being made at the right amount and that the organization is capturing the right information that will be required for tax reclamation, which is the subject of an upcoming post.

Next Post: Reconciliation, Part I

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