Daily Archives: June 21, 2006

Purchase-Order Free Supply Chains

No, I haven’t flipped my gourd (or at least I don’t think so, but they say you’ll never know when you finally do). Consider how much time it takes to create and process a purchase order and then multiply this by the number of purchase orders you process in a year. Chances are that if you are a mid-size enterprise or larger, this is a pretty big number, tying up the equivalent of multiple man years that could be better spent on more strategic, less tactical activities. And, as demonstrated in “The Supply Chain Innovator’s Technology Footprint: A Benchmark Report on What Companies Want in Their Next-Generation Supply Chain Solution” by Aberdeen, such a strategy can reduce buyer direct material inventory by 30% while cutting supplier component inventory by 25%.

This can be accomplished by close collaboration with strategic suppliers and contract manufacturers which includes forecast sharing and demand-supply synchronization. In these situations, suppliers manage replenishment according to minimum/maximum targets, as determined by forecasts, contracts, and service level agreements.

Although a significant amount of work may be required up front to identify, implement, and synch the systems and build the proper relationships, this will ultimately be a drop in a bucket compared to how much work you will have had to do if you continue to be driven by paper-based purchase orders in a wired economy.