How to Automate Sourcing Process and Reduce lead timewp_admin
Lead time is defined as the time taken from when a need is felt to the time need is fulfilled.In Procurement and Supply Chain, this lead time consists of
Components of Lead Time
- Pre-Processing Lead Time (PPL) :- This lead time is needed for sourcing, negotiation and order release
- Processing Lead Time (PL) :- Time taken by the Supplier to manufacture or process the material and get it ready for shipping
- Post Processing Lead Time (PL): This is the time consumed during shipping, receiving , quality inspection etc.
While 2 and 3 above are outside the Organization’s immediate control, time taken for the item 1, that is the Pre-processing lead time can be reduced by automating the process.
Let us see, what typically happens in an Organization during the procurement process. Need for the material is converted to Planned purchase or Requisitions. These requisitions are routed to the Buyers (Purchasing Agents) for converting to Purchase orders and sent to Suppliers for Delivery.
Once the Buyers get the requisition, they start the process called Sourcing. In this phase, they identify the potential suppliers, match the requirements to the supply and negotiate the terms and conditions. This sourcing process can be once in a period (Yearly or Quarterly) or on a regular basis.
Raw Materials and Components that are needed regularly are negotiated in Bulk and a Rate contract is entered into. This also called Blanket Purchase Agreement (BPA) or Scheduling Agreement (SA). Once the Rate contract is in place, as and when Requisitions arise, there is simply a release to the Agreement for the quantity needed. Most of the ERP Systems like Oracle and SAP handle this well and this process can be automated.
For material for which price and delivery fluctuate, Buyers need to repeated sourcing work and this consumes lot of time. For example as the price and availability of Steel varies day by day, Buyers need to get the current quote and delivery time every time they have a need to buy. This creates repetitive work like sending email to a list of suppliers asking them for the current price and delivery, comparing the prices and then releasing the purchase order for that batch of requirement.
Automating Frequent Sourcing
This process of frequent sourcing can be automated to get good benefit. Once the suppliers are identified and validated as preferred suppliers, every time the requisitions are created, suppliers are to be sent the RFQ (Request for Quotation) automatically. Supplier’s responses as Quotations are received automatically, sorted by pre-defined criteria like Price or Delivery. Buyer need to just review the quotations and award the purchase order as per their selection criteria.
This Automation process can greatly reduce the time taken for sourcing and improving the overall Lead time and hence increase the supply chain efficiency.
Tools For Automated Sourcing
It is necessary to use a Supply chain collaboration tool like TPSynergy (www.tpsynergy.com) that can provide the functionality like converting requisitions to RFQ, sending RFQ to Suppliers, ability of the suppliers to view and respond to RFQ online and submit their quotations.
Using such system tool greatly enhances the Supply chain efficiency and avoids situations like Stock Outs.