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Measuring the basics of supplier management

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Workshop How a system such as ERP is configured to get the best from suppliers depends on the sophistication of the system, but some fundamentals apply to pretty much everyone.

What most companies want to know is which suppliers give the best price, or the best service, or a combination of the two.

In the suppliers ledger you keep details of a number of suppliers for the same product or service. The basic metric is price. Indeed, in entry-level ERP systems that is pretty much all you would have, plus a flag against the preferred supplier for a particular product.

But in more sophisticated systems you can also enter other parameters such as lead time, terms and conditions of supply, and some measure of quality.

Rudimentary

“In most systems the information on quality is rudimentary,” says Stuart Lynn, head of research and development at Sage.

So you might institute a score of one to ten or a few words of free text. A more helpful metric might be the number of complaints or returns experienced with that supplier over a specified period, or even an mtbf (mean time between failures) figure for the component it supplies.

In sophisticated businesses you would want to record prices that have been negotiated, for example if you’ve agreed with a supplier that they will hold prices of some products for 12 months, says Lynn.

So you would record the start and finish dates of that negotiation alongside the stock.

Then when you come to sell products, you would need to record the selling price, or mark-up, whether it’s cost price or fixed price, so you don’t stray into losing money.

Mid-range and high-end systems work mainly around the list of preferred suppliers, usually with some automated ordering processes. However, a large part of this is manual. The buyers do the negotiating with suppliers and fix the prices.

Nick Remzi, managing director of Five Go Live, a Sage systems integrator, says the process starts with a focus on what customers buy as well as what suppliers deliver.

“Right from the outset you have to get a full log of the supply chain, including all the people you buy from and sell to,” he advises. “Monitor what customers prefer to buy and categorise based on purchasing behaviour and consumption. Then you can do the same with suppliers.”

Remzi’s team was responsible for integrating the supplier and customer management systems with Sage financial systems at restaurant and deli chain Carluccio’s, including linking the online storefront to the back-end logistics systems.

Kink in a quote

“When you get a kink in a quote you can compare with other suppliers or with the history of that supplier,” Remzi says. “You can do this for prices and for service metrics such as delivery time.”

The system handles procurement, stock movement in and out of the warehouse, receipt and payment of around 10,000 invoices a month from the deli stores, and each restaurant outlet’s takings. It also manages wholesale and consumer orders from Carluccio’s ecommerce site.

Cafe staff order supplies from the warehouse via a simple tick list on a self-service web page. Once submitted, this automatically creates a sales order with delivery date based on parameters held on the system. Stock is picked, despatched and invoiced by the warehouse team.

As a replenishment order is raised by a cafe, a file is automatically sent to advise which products have been ordered and their expected delivery date. Carluccio’s logistics manager has ready access to live, accurate stock levels, and can make purchasing decisions based on which items are moving quickly and which are proving less popular.

Purchase orders

Public transport manufacturer Wrightbus is another organisation that needed to maintain tight control over a vast number of purchases, and again, integration was key to success.

Defacto Solution’s material requirements planning (MRP) engine dovetails into Wrightbus’s purchase ordering software, so Wrightbus can keep track of the more than 2,000 purchased parts which make up each of its buses.

The serial number of each bus is tagged throughout the various levels of works order right down to component level.

When the MRP raises recommendations, the purchase order lines are consolidated and sent to the supplier tagged with each individual bus serial number. So when a part arrives, Wrightbus can easily identify the specific bus it is for. ®

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