Lean: Show orders the door!

The entry of sales and purchase orders, and the processing of the related information, are among the most used ERP functionalities. Interesting, when lean experts consider these processes a waste of time and of no added value to the operation. If we accept that, why are businesses still doing it? And how can we do things differently?

Is you master data up to date?

How many calls, e-mails and printouts are involved in your ordering process? Or in relation to new versions of items from your suppliers? Changes to items lead to new component lists and drawings. Changing market conditions lead to new delivery times. Change is all around you and ongoing.

The quality of your master data is an important issue when considering a more efficient order administration. Effective Material Resource Planning, and the orders that result from it, begins and ends with trustworthy, single source, up to date information.

If the data you use to drive your processes isn’t kept up to date, it can lead to you making the wrong products, to delivering too late or too early, unnecessarily long lead times and unnecessary capital investments.

Use B2B portals

Integrated B2B portals can help you avoid these problems – helping you effectively communicate and share the data surrounding your items.

Remember that your purchase items are also your supplier’s sales items. Imagine that a delivery period changes, and that both the supplier and the purchaser update the system with new information. Work is being done twice, time being wasted on unnecessary communication. With a B2B portal you avoid this by running one central source of master data that services all parties.

Material requirements direct from your MRP system

Trust is the key to developing successful long term buyer-supplier relationships, something developed through clear communication of the right information.

For many manufacturers, order information comes from the Material Resource Planning system (MRP) and is entered manually into the ERP solution. With the right technology, this can be greatly simplified – the material requirements sent to the supplier direct from the MRP system. The benefits of working with this approach, rather than with orders, can be significant…

  • Fewer changes required on existing orders
    When the supplier receives the material requirements directly from the MRP, he can confirm that the delivery date and quantity can be met before the order is confirmed.
     
  • Less administration saves time and minimizes mistakes
    Once the MRP requirements are approved, the order can be automatically created in the ERP systems of both the customer and supplier, and used to acknowledge delivery when the items arrive. This ensures the material requirements calculation at the manufacturer is registered accurately, and saves the time and errors associated with the manual copying over of information.
     
  • Less stock in the supply chain
    A known phenomenon in supply chains is ‘bullwhip’ – increasingly larger responses to initial customer demand as you move through the supply chain. This affects suppliers who do not have actual insight into customer stock levels and work with ‘economical’ batch sizes. By giving the supplier insight into the actual situation and requirements regarding materials, calculated by the MRP based on forecast and/or sales orders, the supplier only stocks the materials that will actually be needed.
     
  • Less stock at the supplier, lower costs for the buyer
    VMI (Vendor-managed inventory) looks like an ideal solution. The stock is the responsibility of the supplier and involves no risk or financial commitment for the buyer. But is this actually cheaper for the recipient? Ultimately, someone has to pay the bills for this convenient service, and it’s the buyer who takes the hit. As such, it’s in their interest to minimize the working capital tied up on the shelves of their supplier. A more customer-oriented inventory based on real-time MRP can be smaller, tie up less cash and be offered at lower cost.
     
  • Lower costs through communication of long term planning The buyer can communicate longer term needs from their MRP, with clear agreements over which requirements are fixed, and which can/are likely to be adjusted. When the supplier gets this insight into the expected performance over the coming weeks, he can adjust his planning accordingly. This ultimately leads to less stock in the supply chain and lower costs for the buyer.
     

Have a look how many order lines you entered and processed in your business last year. The potential time and effort savings from automating communication to your suppliers from your MRP system are enormous. Show order entry the door and get your administration costs and error rates down!