Guest Commentary: P.O. Management Programs – Know Pain, Know Gain!

As a participant in managing all or part of your company’s supply chain, you may know the pain of answering sometimes difficult questions. Where is my order? Why is it late? When will it get here? Why didn’t the vendor let us know? What should I tell the client? Who is responsible? What is this going to cost? You could answer them with a purchase order (P.O.) management system. But implementing one means dealing with change, which is hard for any organization.

But look at the pain-vs.-gain equation. Is it worse to suffer because you can’t answer queries from internal and external customers? Or is it worth the pain of implementing a P.O. management system and obtaining capabilities your competitors don’t have?

P.O. management systems have come a long way in 10 years. Besides providing fast, thorough answers to customers, today’s ERP, cloud-based SaaS, or 3PL-operated systems enable companies to manage the order lifecycle, control information and cargo flows, and reduce the total cost of goods.

Say you decide that these gains would be worth it. You write an RFQ, screen candidates, create a short list, select the provider, and negotiate service requirements and a cost structure.

Now, the hard work begins.

3 “Musts” for Success

P.O. management programs deliver the greatest benefits when they are used as an agent for change. So establish a framework that sets up your program for success:

1. Gather a cross-functional team. It’s hard enough for people to change without springing change on them. Diffuse resistance by inviting stakeholders from internal groups to become part of the solution as early as possible.

2. Look internally at your current process. Your team needs to ask some hard questions. How and why do we manage the order process the way we do? Are we a good supply chain partner or customer? How can we align our internal processes more effectively? Have we engaged key stakeholders? Are we committed to creating and deploying a more efficient process at all touch points in the order lifecycle? You have the greatest chance of gains if you thoroughly and honestly answer these questions.

3. Encourage ongoing stakeholder input. Your stakeholders can:

  • Align sourcing, purchasing, logistics, and I.T. activities with vendor requirements to support P.O. management and related logistics objectives
  • Define specific goals and objectives for each department
  • Define roles and responsibilities for each supply chain participant
  • Understand technology, information, and reporting tools and how to use them in the business
  • Understand technology requirements for setup, implementation, and problem resolution
  • Commit to systems and process training
  • Participate in discovery, developing standard operating procedures (SOP), implementing, and ongoing business activity

How to Recognize Success

If you have these necessary ingredients, you have the foundation to implement a successful P.O. management program. You’ll know the program is succeeding when you achieve gains like these:

Vendor behavior improves to align with order expectations. Order acknowledgement times decrease, and order acceptance accuracy increases. Discrepancies decrease between agreed vs. delivered orders. Pre-shipment order status update activity improves. Discrepancies decrease between planned and actual logistics activity.

Buyers, planners, and logistics staff spend less time and money tracking order status. They don’t have to track the status of every order, but can focus on order exception resolution. They process fewer vendor requests for order changes due to improved vendor accuracy. Internal and external customer response times improve with online tracking and reporting tools to confirm order and shipment status.

Sourcing uses P.O. performance metrics to influence vendor behavior and impact sourcing choices. As performance reporting metrics capture vendor performance, the company can substantiate penalties for noncompliance and poor performance, recognize or reward high performers, and incent positive results and consistent behavior. Sourcing decisions are guided by reported historical performance; the company uses established performance trends and data to review vendor relationships, rationalize vendor decisions, and determine whether new vendors should be considered to replace poor performers. Visibility to experienced landed costs through reporting, allows the company to validate expected unit cost and sales price assumptions and influence future ordering and vendor selection decisions.

Total order lifecycle and related cost of ownership decrease. Order visibility and control combine with logistics strategies to realize transportation savings that impact the bottom line. Logistics staff manages transportation costs through mode and carrier selection guidelines. Thanks to route optimization, order speed from vendor ship date to DC delivery aligns with demand. The company maps and measures manufacturing lead times and combines it with experienced transit timelines for more accurate order lifecycle requirements.

How to Recognize Failure

Without the 3 essential ingredients for success, you will notice signs of implementation failure, including:

  • Unchanged vendor behaviors. Inconsistent supplier participation levels impact expected order and cargo volumes under management. Vendors resist program requirements, so you must negotiate with the buyer, adding to administrative or item level costs. Noncompliance with order and logistics management processes causes extra administrative and transactional work for the vendor, logistics, and buyer teams.

  • Poor client adoption. Noncompliance can occur with buyers, planners, and logistics teams, who don’t understand program requirements or aren’t motivated or engaged to work toward the desired results. There are low or inconsistent adoption rates for online tools that help manage logistics activity and resolve exceptions. There are missed opportunities to understand and use analytic data about performance that could be used for vendor feedback and negotiation. Vendor behavior may remain unchanged and unchallenged by buyers, sourcing, or management.

You can ignore P.O. management system, which can cause the same signs of failure you see above. Or you can go through a bit of pain now and achieve gains your competition hasn’t even thought of yet. P.O. management systems can lead to a more efficient, cost effective supply chain and an advantage in the market. Which will you choose?

Clark Petersen, Director of Global Forwarding at C.H. Robinson, is committed to delivering exceptional value every day. He joined C.H. Robinson through the acquisition of Phoenix International Freight Services in 2012. For eight years while at Phoenix International, Clark was responsible for the development of the purchase order, vendor management, and bundled logistics service offerings. Clark has more than 20 years of experience in the forwarding and logistics industry. His past roles include operations management as well as business and service program development. In his current position he is responsible for the continued growth and development of C.H. Robinson’s purchase order and vendor management service offerings and their supporting technologies.