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#SCMBootcamp Tip: Top 5 purchasing practices to avoid

by Allison Martin

May 28, 2013

Below is a quick tip from a session you'll have a chance to attend at our SCM Bootcamp in Chicago, July 17-19 titled, “Where Are You Burning Money in Your Supply Chain — and Harming Customer Retention? which includes numerous tips on how to identify where you are losing money in your supply chain.

Purchasing and production are the two supply functions in the supply chain that influence the performance in inventory and the overall cost of supply. Here is a list of the top 5 purchasing practices that inflate costs and inventory levels.

1. Disjoint Between Supply and Demand in the Supply Chain
•Buyers are often more focused on the perceived savings in the purchase than the internal cost to the organization
- Special buys, rebates, and discounts
- Availability and market price fluctuations
- Long international lead times and unreliable delivery dates
- Container sizing for inbound deliveries
- Often influenced by supplier targets

2. Pressure from Within the Organization
•Very often buyers have no say in the matter, and inflation of inventories is out of their control
- An unrealistic, ever-changing forecast
- Executive override based on sales strategy or supplier relationship
- Unreliable inventory accuracy
- An email instruction from someone in sales
- “That’s the way we do business in this industry”
- “We are different”

3. ERP or SAP Deficiencies
•When the power of SAP’s “business” solution is not understood, the system is often seen only as a transactional “IT” solution. This is possibly the greatest contributor to inefficiencies and cost in the supply chain.
- MRP is primarily used to propose planned orders and purchase requisitions
- Not necessary to create a planned order for something we intend to purchase externally – direct to requisition
- Spreadsheets are still the order of the day to calculate supply quantities
- Third-party systems are used to calculate safety stocks and order quantities in an “automated” fashion
- Purchase orders manually created without a purchase requisition OR from a requisition for a material that should be automated
- Safety stocks and supply days are constantly adjusted to ensure enough stock
- Safety stock is used as a reorder point

4. An Inability to Set the System Up to Do the Work
•The SAP system is designed to automate transactions, assuming the inventory strategy and the MRP rules are aligned and adhered to
•If the buyer doesn’t follow the plan, supply chain integration will never be achieved
•Allocation of accountability to manage “business rules” increases productivity, but

- Limited to no access to master data
- Very limited understanding of all the options and settings in master data
- Poor understanding of the supply chain exception monitor and its purpose

5. Visibility and Understanding Within SAP Implementation
•Many people within the organization are introduced to SAP software through training at the transactional level only
- Create a purchase requisition, do a goods receipt, etc.
- Very few have a clear understanding of the upstream and downstream functions they impact, or are impacted by
•Standard SAP tools and reports, which are aligned with integrated business processes and designed to govern master data performance, are not understood or allocated within the supply chain operations
•Ability to analyze and interpret situations and opportunities, using standard analytic techniques, is not being taught within the integrated supply chain operations
•Spreadsheet data is used for management reporting because management often doesn’t even work inside the system

For more tips and training on how to optimize SAP SCM,  view the full session agenda at www.scmbootcamp.com and make sure to follow us on twitter at #SCMBootcamp.

I look forward to seeing you there.

-Allison

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