Is purchase order management and paying suppliers late clogging the arteries of your supply chain heart?

Over 40 years, I have seen many reasons for supply disruptions. Undoubtedly, many of these disruptions result from external events beyond our control, like the pandemic or war in Ukraine.

But what about the internal disruptions that are in our control?

My question is, don’t we have enough disruption to deal with in the outside world? Why must we add to the challenges our procurement and administration teams will face in 2024?

I will share some facts with you that I am sure you will find enlightening:

Managing “In-Process” Purchase Orders

• Before the pandemic, 36% of line items would change over the lifecycle of a PO. In other words, “business as usual” meant that about a third of line items will change from the time that a manufacturer sends a PO to when that PO is delivered in full. (SourceDay)
• In the wake of the COVID-19 crisis, the average of line item changes per PO jumped up to 61%. (SourceDay)

Question: What is your rate of PO line changes today, and how effectively are you handling said changes?

Dropping The Baton

In a relay race, the winning team usually executes a seamless transfer of the baton between runners. If even a single hand-off goes poorly, the entire race can and usually is lost.

It is, therefore, reasonable to assume that if managing in-process purchase orders is done effectively, then the “hand-off” to managing payment of supplier invoices should be virtually problem-free.

Is this really the case? The following statistics would suggest otherwise:

• Invalid or incorrect purchase order information leads to 49% of disputes (CFO.com).
• 61% of late payments are due to compliance or administrative problems, such as incorrect invoices or receiving the invoice too late to process payment on established credit terms (Credit Research Foundation).
• 47.93% of SMBs in the B2B sector rely on limited functionality in accounting or ERP systems to manage credit and collections (2014 study by e2b teknologies).
• 53% of midmarket B2B companies are using spreadsheets to manage their accounts receivable (2014 study by e2b teknologies). And to make this even scarier…
• 94% of spreadsheets contained errors (Dartmouth College’s Tuck School of Business).
• 26% of invoices over three months old are uncollectable. This increases to 70% uncollectable at six months and 90% uncollectable at 12 months (US Census Bureau).

Based on the above statistics – from well before the pandemic- would you say that the management of in-process invoices has improved or worsened?

The Ripple Effect of the Million-Dollar Nickel

This past November, I interviewed some of the manufacturing industry’s best and brightest leaders for the series Scary But True Tales of the Million Dollar Nickel.

Here is the series overview:

For manufacturers, the Million Dollar Nickel is like stepping on a Lego block with your bare foot in the middle of the night. Just one little, seemingly insignificant five-cent plastic part can create a shooting pain that reverberates throughout your entire supply chain, bringing you to an immediate standstill.

Don’t let a small, missing part bring down your entire production line and cost your company millions.

You can access the 5-minute videos through the following link: Scary But True Tales of the Million Dollar Nickel

My point in sharing the above series with you is for you to see how there is a significant and, for the most part, preventable way of effectively managing your in-process purchase order practice to avoid the reverberating effects of discrepancies that originate when orders are subjected to the inevitable changes.

Over the coming weeks, I will post each interview featuring the following experts:

• Sneha Kumari, MBA, Six Sigma – Sr. Global Supply Manager, Amazon Web Services (AWS)
• Dave Crysler – Founder and Principal Consultant, The Crysler Club
• Frank Barrett – Chief Technology Officer, ArcLight Solutions
• Michael Ryan – Managing Partner, The M. Ryan Group
• Lindsay Smith – Solutions Principal, Manufacturing Industry, Insight
• Tom Kieley – CEO and Co-Founder of SourceDay
• Clint McRee – Co-Founder & Author “Start-up Lessons Learned Along the Way Our SourceDay Journey”

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