Lead time, a crucial concept in Procurement and Supply Chain, refers to the time from when a need is identified to when it is satisfied. It comprises several components:
Pre-Processing Lead Time (PPL): This involves sourcing, negotiation, and order release.
Processing Lead Time (PL): The time taken by the supplier to manufacture or process the material for shipping.
Post Processing Lead Time (PL): This includes shipping, receiving, and quality inspection.
While the second and third components are beyond an organization's immediate control, the first one can be shortened by automating the process.
Now, let's delve into the procurement process that typically occurs within an organization. The need for materials is transformed into planned purchases or requisitions, which are then forwarded to buyers (purchasing agents) for converting them into purchase orders and sending them to suppliers for delivery.
Upon receiving the requisitions, the buyers initiate the sourcing process. They identify potential suppliers, match requirements with the available supply, and negotiate terms and conditions. This sourcing process can occur periodically (yearly or quarterly) or on a regular basis.
Regularly required raw materials and components are negotiated in bulk through rate contracts, also known as Blanket Purchase Agreements (BPA) or Scheduling Agreements (SA). Once a rate contract is established, subsequent requisitions can be released according to the agreed-upon quantity. Leading ERP systems like Oracle and SAP effectively handle this automation.
However, when dealing with materials subject to price and delivery fluctuations, buyers must undertake frequent sourcing activities. For example, in the case of Steel, where price and availability fluctuate daily, buyers need to obtain current quotes and delivery times for every purchase requirement. This repetitive work involves sending emails to multiple suppliers, requesting price and delivery information, comparing prices, and finally releasing purchase orders for the required batches.
Automating Frequent Sourcing for Enhanced Supply Chain Efficiency
One of the most effective strategies to improve the overall efficiency of the supply chain is through automating frequent sourcing. By leveraging automation, businesses can reap significant benefits. Once preferred suppliers have been identified and validated, the system can automatically send them a Request for Quotation (RFQ) every time a requisition is created. The suppliers' responses, in the form of quotations, are received and sorted based on pre-defined criteria such as price and delivery. This streamlined process allows buyers to easily review and select the most suitable quotation to award the purchase order.
By embracing automation, businesses can significantly reduce sourcing time and improve overall lead time, thereby enhancing supply chain efficiency. To facilitate this automation, it is crucial to leverage a robust supply chain collaboration tool such as TPSynergy (www.tpsynergy.com). This tool provides essential functionalities like converting requisitions to RFQs, sending RFQs to suppliers, enabling suppliers to view and respond to RFQs online, and submit their quotations seamlessly.
Implementing such a system tool not only optimizes the supply chain efficiency but also helps to prevent issues like stock outs. Streamline your sourcing processes today with the power of automation and take your supply chain to new heights of productivity and effectiveness.
By understanding and optimizing these processes, organizations can streamline their procurement operations, improving efficiency and achieving better outcomes.
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