Best Practices in Supply Management Journal

66th Edition, July 2014

Articles In This Issue
"Top Ten Reasons to Use Purchase Orders"
"Quiet Enjoyment - A Clever Contracting Concept"

Founder Appearances, Articles, and Reader Job Opportunities.

 

Upcoming Founder Appearances:

August 13th - 15th, Mark Trowbridge will present a three day master class  on 'Expert Strategic Sourcing' at the Hotel Grand Pacific Singapore (Singapore).  Click here for registration information Singapore Conference Signup 

September 11th - 12th, Mark Trowbridge will partner with NAPM San Fernando Valley to present a two day workshop on 'Innovative Trends in Technology Contracting' at the Burbank (California) Airport Holiday Inn.  Click here for registration information Tech Contracting Workshop Signup 
 
September 19th and October 3rd, Mark Trowbridge will partner with ISM Northern California to present the first of three CPSM Exam Preparation Workshops in Downtown San Francisco (McKesson HQ Building).  The second and third CPSM exam preparation sessions will follow in approximate three month intervals.  Click here for registration information CPSM Exam Prep Link 
 
Founder Articles:   An article written by Mark Trowbridge has been published by My Purchasing Center.  The article can be viewed at Article Link
 

Job Opportunities:  We are currently helping clients fill the following SCM career opportunities.  Contact Strategic Procurement Solutions by clicking the following link if inerested...Apply for Job Opportunity (Type Job Title Into Subject Line)

- Procurement Project Manager (P2P), Three Global Positions in Illinois USA, Great Britain UK, and Hungary EU.  Global Oil/Gas Company.  Annual Base Salary between $90K and $100K USD, plus bonus, benefits, and pension plan.  Relocation negotiable.

- Marketing Sourcing Specialist, South San Francisco Bay Area, California, Technology Company.  Annual Base Salary between $100K and $120K USD, plus bonus and benefits.  Relocation negotiable.

- IT Sourcing Specialist, South San Francisco Bay Area, California, Technology Company.  Annual Base Salary between $100K and $120K USD, plus bonus and benefits.  Relocation negotiable.

- Senior Sourcing Leader, Southern Wisconsin Area.  4 - 8 Years of Sourcing & Contracting for Marketing Expenditures and Professional Services.  Base Salary Between $100K and $110K.  Excellent Bonus and Benefits Package.  Relocation Negotiable.

 

- Director of City Procurement, A greater Sacramento Area City, California. Experienced governmental procurement leader with strong Capital and Operational procurement and contracting skills with background in progressive municipal procurement.  Base Salary between $95K and $125K.  Strong Benefits Package. Relocation Negotiable. 

- Procurement Specialist, South San Francisco Bay Area, California, Technology Company.  Annual Base Salary between $85K and $90K USD, plus bonus and benefits.  Relocation negotiable.

- Supply Chain Director, North Carolina.  T1 Technology Reseller.  Annual Base Salary between $118K and $145K USD, plus bonus and benefits.  International experience with notebook, laptop, and tablet technology distribution including procurement, inventory management, and logistics required.  Direct and Indirect expenditure sector experience required.  Relocation negotiable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This electronic journal is now distributed bi-monthly to 
nearly 13,000 Supply Management Professionals around the globe. Note that our educational articles are 'in depth', unlike most online publications.  We hope you enjoy this edition. Feel free to forward to your SCM colleagues!  And keep SPS in mind when your organization needs top quality Supply Management Consulting, Employee Skills Testing & Training, P2P Efficiency Reviews, Cost Reduction Support or SCM Staff Augmentation/ Recruiting Services.

 

 

"Top Ten Reasons to Use Purchase Orders" - by Mark Trowbridge - Principal, CPSM, C.P.M., MCIPS

The procurement director for large financial services company recently asked me for reasons to use purchase orders. His procurement group was receiving pushback from the firm's accounting division, which was happy to issue payments merely based on internal management "approving" supplier invoices.

 

In my email to this execuive, I put together the following list of Top 10 Reasons to Use Purchase Orders:

 

Reason One - Online approval prior to PO issuance ensures the expenditure is budgeted and authorized before the commitment is made to a supplier.  With invoice-only payment processing, an organization is already liable for the expenditure even though it was never approved by management.
 
Reason Two - An automated PO routing and approval process ensures that only authorized company representatives can commit to supplier expenditures. This focuses supplier relationships through the procurement organization.

 

Reason Three - If a PO is a requirement before a supplier can be paid, they won't start work for a business without it.  Word travels fast in the supplier community, and can be aided by an email to each supplier reminding them that a purchase order number is required on all invoices. This will keep control in the procurement organization and prevent suppliers from shipping products of beginning work without prior purchase order approval being in place.

 

Reason Four - It has been documented in many studies that material errors exist more than 1.5% of invoice line items billed by suppliers.  80% of the time the error is to the benefit of the supplier (hmmm, what a coincidence...).  Having PO/Invoice matching catches a majority of the errors and does not allow them to be passed through without reconciliation.  

 

When Strategic Procurement Solutions performed a 360o Procurement Efficiency Review for this same financial services firm, their Accounts Payable organization was processing around 55,000 invoices a year valued around $200 Million USD.  If we assume the average invoice contains two line items, that's 110,000 invoice line items being paid each year...indicating that there are about 1,600 (1.5%) line items having material errors. Dividing annual spending by 106,000 line items results in an average line item value of $1,818/line item...thus indicating $3.0 Million of questionable charges that purchase orders would tend to catch.  

 

Reason Five - Use of a purchase order streamlines payment processing, since the processor doesn't have to enter line item details.  They should pull up the purchase order and it's line item description and insert the billed quantity.  The other information fills automatically into the invoice record with much greater detail than allowing different AP processors' subjective one word summary entry of the transaction....for example, "Metal" rather than "4' x 8' Sheet of 6061-T6 Aluminum".

 

Reason Six - Use of a purchase order ensures the charge goes to the GL account, charge unit, and project number the PO was budgeted to.  "Creative" budget owners can't shift the expense to a different GL account.

 

Reason Seven - A purchase order should contain legal terms which mitigate risk in transactions.  Even if it does not occur under a contract, the supplier's terms don't prevail.  In an invoice-only transaction, the supplier's proposal/quotation legal terms could control the transaction, thus exposing the buying organization to greater risk on issues like title transfer, risk of loss during shipment, payment terms, freight costs, warranty, third-party patent infringement, ownership of work product, limitation of restocking fees, etc.  

 

Reason Eight - A purchase order causes an organization to clearly articulate what they wish to buy from a supplier.  If the supplier questions a description, they will usually do that before shipment/performance.  But without a PO, the supplier is open to interpret a telephone or email order incorrectly, resulting in a miss-shipment.  That results in the business unit or having to facilitate a return to the supplier, and procurement will usually end up having to clean up the mess.  Returns are much easier when a purchase order has been utilized.

 

Reason Nine - A purchase order allows procurement to have visibility to backorders or partial shipments, thus facilitating follow ups and expediting.  Without a PO, no one knows what hasn't been shipped...just what has been invoiced.

 

Reason Ten - A purchase order facilitates  formal 'receiving' to validate received shipments.  Without a purchase order, you have no formal receiving process...except for AP to send an invoice to the business unit asking them for approval.  The business unit often will not dispute slightly different quantities in an invoice and procurement never is notified payment has been approved for something which wasn't formally received.

 

Consistent use of purchase orders will optimize the entire Procure-to-Payment process. Even contracted expenditures will be better-managed through purchase orders, by ensuring spending can be properly allocated to correct Contracts, SOWs, and Projects.

 

Of course, not every expenditure needs to be under a purchase order.  Use of other techniques like PCards or Evaluated Receipt Settlement (ERS) can be similarly-valuable when used optimally.  But purchase orders are a great tool for the majority of procurement transactions, especially when automated though an eProcurement technology solution.

 

Failure to strategically-use purchase orders will allow suppliers and internal departments to bypass procurement and thus executive management.  

 

Strategic Procurement Solutions often helps companies and governmental groups to optimize their supply management operations. We do this in just a few short weeks through our 360o Supply Management Efficiency Assessment. Please contact us at Info@StrategicProcurementSolutions.com for information about this service.

 

About the Author - Mark Trowbridge, CPSM, C.P.M., MCIPS is one of Strategic Procurement Solutions founders. His 30 years in procurement leadership began in the Manufacturing, Airline, and Financial Services sectors...culminating in a role leading three-quarters of the strategic sourcing activities, and all of the contracts management responsibilities, for Bank of America (then, the USA's third most-profitable company). During his final two years with Bank of America, Mark's areas of responsibility delivered a Quarter Billion Dollars in cost reductions. During the last 15 years, Mr. Trowbridge has worked in the consulting field with many leading corporate and governmental clients. His business travels have taken him throughout North America, Europe, the Middle East, Asia, and Malaysia. He is a frequent author on supply management topics, with articles appearing in publications like Supply Chain Management Review, Inside Supply Management, IFPSM's eZine, eSide Supply Management, and Strategic Procurement Solutions' own Best Practices in Supply Management Journal.  Mark's  is among the top 1% Most-Viewed LinkedIn profiles.

 

 

"Quiet Enjoyment - A Clever Contracting Concept"- by Robert Dunn, MBA, C.P.M., Principal

Any good service agreement should contain language about what services should include. But too often, companies neglect to tell their supplier what services should not include.

 

One of the clauses Strategic Procurement Solutions incorporates into the libraries of template agreements we design (or improve) for our clients is a Quiet Enjoyment clause. This clause prevents actions by the supplier which would prevent their unencumbered use of the product or services.

 

Many years of procurement management experience have allowed me to observe suppliers uncomfortably impose their processes upon customers.  

 

Consider the following examples of intrusive supplier behavior:

 

- Software updates scheduled on a weekday rather than a weekend;

 

- Technicians arriving unannounced to perform unscheduled preventative maintenance on the Multi-Function Device (MFC);

 

- Trapdoor coding embedded in software or firmware to disable functionality in the event of a dispute or an invoice delay;

 

- Supplier website downtime scheduled during working hours rather than off hours in the evening or on weekends;

 

- Construction firm cutting off power to a company's headquarters building during an office remodeling project;

 

- Contractor's equipment blocking access to facilities during working hours;

 

- A supplier assigning its receiving stream to a third-party; or

 

- HVAC system maintenance performed during week.

A simple Quiet Enjoyment clause might resemble the following...

 

"QUIET ENJOYMENT - During the term of this Agreement, Company may use Product without disturbance, subject only to its obligations to make the payments required by this Agreement. Supplier shall schedule all installation and preventative maintenance services in advance with Company's assigned project manager. Supplier shall conduct such installation and maintenance services in non-obtrusive manner which minimizes disruption to Company's personnel and business operations.   Supplier represents that this Agreement is not subject or subordinate to any right of Supplier's creditors, or if such subordination exists, the agreement or instrument creating it provides for non-disturbance of Company as long as it shall not be in default hereunder."

 

Strategic Procurement Solutions help clients in the private and government sectors to optimize their Contracting Management practices. We work with procurement leaders and their legal counsel to develop template agreements, clause libraries and fallback language to incorporate optimal procurement language. We also evaluate contracting management processes, system utilization, and techniques. Our skilled instructors train procurement audiences with onsite workshops like Strategic Contracting™ (2 days) and Innovative Trends in Technology Contracting™ (2 days).   More information can be requested at Info@StrategicProcurementSolutions.com 

 

Disclaimer - Strategic Procurement Solutions' informative articles should not be construed as legal advice. Readers must discuss content with their own legal counsel to determine possible application to your own environment and governing laws.

 

About the Author:  Robert Dunn, MBA, C.P.M. is one of Strategic Procurement Solutions' founders.  His 40 years in procurement leadership covered management positions in the Government, Technology and Financial Services sectors; culminating in a role directing all of BankAmerica Corporation's procurement operations.  He has served as President of two ISM/NAPM affiliates, and taught supply chain management at the post-graduate level for California State University - Hayward and St. Mary's College - San Francisco.  He has also worked with major corporate and governmental clients in the consulting industry for the past 18 years, and was one of the founders of Strategic Procurement Solutions.   Robert has worked on major procurement initiatives in North America, Latin America, Europe, and Asia.  He is a noted author, with recent articles in eSide Supply Management and Strategic Procurement Solutions' own Best Practices in Supply Management Journal (the latter of which is now distributed to over 13,000 readers).

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