In today’s interconnected global economy, supply chains play a vital role in the success of businesses. However, recent disruptions have highlighted the vulnerabilities of these complex networks, resulting in significant financial losses for companies. It is crucial for organizations to understand the importance of Purchase Order collaboration to effectively manage their direct spend, optimize operations, and mitigate risks. This article explores the disruptive nature of supply chain disruptions, the significance of collaboration in managing direct spend, the role of Purchase Order (PO) Collaboration in tracking materials throughout the order cycle, and real-world challenges faced in PO Collaboration.
Supply Chains Under Disruption: A Financial Toll
Recent years have witnessed several disruptions that have shaken global supply chains, causing major financial setbacks for companies. From natural disasters to geopolitical tensions and the ongoing COVID-19 pandemic, supply chains have been significantly impacted. According to a report by Accenture, there is a 7-10% reduction in shareholder value due to supply chain disruptions [From: The Effect of Supply Chain Disruptions on Long Term Shareholder Value, Heidrich & Singhal, 2011; Accenture Global Risk Study, 2016]
The Scope of Direct Spend in Supply Chains
Direct spend encompasses the products and materials that companies either sell or consume in their operations. It directly affects the bottom line, making it crucial to manage effectively. Direct spend can be a significant part of the Cost of Goods Sold for an organization.
Criticality of PO Collaboration for Direct Spend Management
PO collaboration plays a pivotal role in managing direct spend efficiently. By fostering collaboration across all stakeholders, including suppliers, manufacturers, and logistics providers, companies can enhance visibility, streamline processes, and proactively address disruptions. A recent report says that more than 77% of companies said, in a survey, that they are investing in deeper and more collaborative supplier relationships to improve resilience and agility.
Consequences of Lack of PO Collaboration Capabilities
Failure to prioritize PO collaboration can lead to severe consequences for companies. The following table highlights the typical challenges faced in PO Collaboration and their impacts:
|PO Collaboration Challenges
|Business Metrics Impact
|Supply chain disruption
|Unexpected delays, partial deliveries, and potential production and shipment disruptions
|20-40% reduction in disruptions
|Increased supply chain cost
|Higher expenses due to locating alternative sources, expediting production or shipment, and increased inventory levels
|10-30% reduction in expediting costs
|Higher inventory levels
|Inefficient inventory management, increased carrying costs, and potential stockouts
|2-10% reduction in inventory carrying costs
|Lost sales revenue
|Poor product availability, long delivery lead times, and order cancellations due to incomplete deliveries
|10-25% reduction in lost sales revenue
|Frequent supplier disputes
|Disruptions in order fulfillment, potential financial losses, and strained supplier relationships
PO Collaboration in Different Manufacturing Strategies
In different manufacturing strategies, namely Make to Stock, Configure to Order, and Make to Order, PO Collaboration takes on distinct characteristics:
- Make to Stock: In this strategy, products are manufactured based on anticipated demand. PO Collaboration focuses on maintaining accurate demand forecasts, timely communication with suppliers, and efficient replenishment processes to ensure optimal stock levels and minimize stockouts.
- Configure to Order: This strategy involves customizing standard products based on customer specifications. PO Collaboration is essential in coordinating with suppliers to ensure timely delivery of customized components and managing production schedules to meet customer requirements.
- Make to Order: Here, products are manufactured based on specific customer orders. PO Collaboration involves close coordination with suppliers to procure materials based on order specifications, tracking delivery timelines, and aligning production schedules to meet customer delivery expectations.
Here is a summary of the key supply chain characteristics of each of the manufacturing strategy and how it impacts collaboration with suppliers.
|Supply Chain Characteristic
|Make to Stock
|Configure to Order
|Make to Order
|High inventory levels
|Moderate inventory levels
|Low inventory levels
|Short lead times
|Moderate lead times
|Long lead times
|Need for Forecasting
|High reliance on forecasting
|Moderate reliance on forecasting
|Limited reliance on forecasting
|Need for Deep Supplier Collaboration
|Less emphasis on deep collaboration
|Moderate emphasis on deep collaboration
|Strong emphasis on deep collaboration
|Nature of PO Collaboration
|Focus on demand forecasting, inventory management, and stock replenishment
|Emphasis on customization, coordination with suppliers for components, and production scheduling
|Close coordination with suppliers for order specifications, material procurement, and delivery tracking
The benefits of PO Collaboration are significant, including improved supply chain visibility, reduced lead times, optimized inventory management, and enhanced customer satisfaction. By effectively addressing the challenges in PO Collaboration, organizations can mitigate disruptions, reduce costs, improve operational efficiency, and gain a competitive edge in the marketplace. Prioritizing collaboration across the supply chain will enable companies to navigate uncertainties, achieve sustainable growth, and drive long-term success.
Nari Viswanathan is currently Sr. Director of Product Segment Marketing at Coupa Software, where he brings products to markets in the areas of Direct Material Procurement and Supply Chain Design and Planning. Over the past 20 years, Nari has held VP and Director of Product Management, Research and Marketing roles at Aberdeen Group, River Logic, Steelwedge and E2open. He has significant experience building products from the ground up and managing the P&L for a product suite. He is a proven B2B marketer with expertise in content marketing, competitive intelligence, and positioning. He has published numerous thought leadership articles, whitepapers, blogs and delivered dozens of webinars during his career. Nari Viswanathan is a six times SDCExec Supply Chain Pro to Know award winner. Nari holds a master’s degree in Manufacturing Systems Engineering at the University of Wisconsin-Madison and a bachelor’s degree in Mechanical Engineering at the Indian Institute of Technology, Chennai.