Save money by avoiding costly procurement mistakes!
“Mistakes are a fact of life. It is the response to error that counts.” - Nikki Giovanni
“What is done cannot be undone, but at least one can keep it from happening again.” - Anne Frank
“You’ll never get ahead by blaming your problems on other people.” -Willie Nelson
Ordering the routine supplies you need to operate your lab is a routine task on most days. But when things go wrong and you can no longer perform testing, the costs can skyrocket. In a manufacturing environment, if the product cannot be validated to ship, the costs to the business can be in the millions of dollars per day! If you are the person responsible for doing the ordering, you will soon be getting a lot of very unwanted attention.
In this newsletter, we will be taking a look at some of the most common mistakes and the steps we can take together to reduce the number of errors that are made and as a result, the costs of your lab supplies.
Where are the most likely places for errors to occur?
Since we are involved in science, let’s do a root cause analysis. In order to do this let’s first outline the steps in the process:
- 1.) SOURCING - selecting the item(s) you wish to order and the vendor to order from.
- 2.) ORDERING - communicating within your organization and to the vendor what you want.
- 3.) RECEIVING - having the goods delivered to you and getting the bill for the items.
This is a simplified of what is known as the Procure to Pay (P2P) process. Let’s start our root cause analysis by looking at each of these steps and the most common errors that occur at each step.
Sourcing errors are reduced the more times an item has been ordered and used successfully. There is always a possibility that the product may be defective or out-of-specification. The most likely errors in sourcing can be attributed to:
- - Unit of measure errors. “I wanted a case but I ordered a pack.”
- - Unsuitable product specifications. “The product looked right but when I read the specifications carefully I found out it lacked ___________.
- - Typographical errors. “I wanted item 126M-2000 but I left out the “M” and got the wrong item.”
- - Vendor selection. “I bought it from Vendor X and didn’t realize it would take a week to arrive!”
Reducing these common errors falls mainly on the customer. The vendor is often blamed for the error. These types of errors are commonly made by someone who is new to the ordering process. If these are the items being ordering for the first time or if the item is a big, heavy and/or expensive piece of equipment, take the time to ensure you are ordering the right item!
The most common ordering errors are:
- Transmission errors. Order sent to the wrong vendor/email address/person or not sent at all.
- Duplicate orders. Order sent to multiple people at the vendor (e.g., to “Orders” email and the sales rep.)
- Pricing errors. Order sent with a price on your purchase order that doesn’t match the vendors quote.
- Catalog number errors. If you are sending an order to vendor “A” with former vendor “B’s” part numbers indicated, your order will be held up. Make sure your purchasing system is updated when you change vendors!
Reducing these common errors again falls mostly on the customer. Establishing good communication with your vendor on new items and an easy-to-use ordering method will reduce these errors dramatically.
Is the item you received the item you ordered? In organizations with a receiving department, the question is, who gets these items and what order are they associated with? Was the item damaged in shipment?
- Item match to P.O. error. The person receiving the goods has to have a packing slip to work with and an order reference number (e.g, Purchase Order #) that will allow him/her to look up the original order. In order to do this, the catalog numbers of the items need to be the same. If your system didn’t use the vendors catalog numbers (see above) this will be a recurring problem.
- Who gets this order? Nearly every vendor knows to place the P.O. number in the ship-to information. But if you want a ship-to-attention information as well, you will need to make that clear on the purchase order and communicate that requirement to your vendors.
- Broken or damaged goods. Many customers treat an item that is damaged in shipment as they would an item that has a manufacturing defect. A manufacturer’s defect is handled by the product warranty terms. A damaged item is in nearly every case a problem between the carrier and the customer! Many vendors will take care of small damage to help out the customer. Unfortunately this practice has “spoiled” many customers who are in shock when they learn that they have to deal with UPS or FedEx on a damaged shipment.
In some cases the person in the lab will be sent copies of the vendor invoices to approve for payment. But in nearly all cases, if the P.O. matches the packing slip and the receiving report (the “three way match.”) then the bill is paid. Many disputes originate here:
- Terms disputes. Vendor has 2% 10, Net 30 terms but customer takes 2% discount even if they have paid the bill on day 30.
- Pricing disputes. The price listed on the purchase order doesn’t match the price on the invoice. The bill is either short paid or goes unpaid and the vendor is not contacted. The account ends up delinquent and goes on credit hold and no further shipments are made until it is resolved.
- Shipping charge disputes. There are any number of these but here is just one example: “Ship by FedEx” is on the purchase order. The vendor ships the item overnight, Priority 1. The customer is billed $300 in shipping charges and is furious because they meant Ship by FedEx GROUND. This is not a rare occurrence.
- Missing invoices. Many overdue invoices are attributed to an invoice that was “never received.” This does happen, of course, but who is at fault? This is why statements are mailed monthly by most vendors. This way you can check for missing invoices and request copies before the bills age into delinquency and end up with your account on credit hold.
Returning items for credit.
This topic is so often misunderstood and frequently abused by some customers. This is also a very expensive component for manufacturers and distributors. Once an item has left their facility, they no longer have control over it. Many very expensive temperature sensitive reagents must be discarded because the vendor cannot confirm if they have been stored properly. Autoclaves are an example of a piece of equipment that if it has been used, cannot be returned because it is now contaminated to the point where it cannot be resold by law.
Amazon and Wal-Mart have “no questions asked” return policies. But even these companies have limits. Your return history is tracked. If you overuse or abuse the return policy, you will be flagged and may lose your ordering privileges. Fisher and VWR use very sophisticated software to track their customer’s return history as well.
Restocking fees. It is very common for vendors to charge 10, 15, 25% or more in restocking fees. A restocking fee covers the cost of them repackaging, reinspecting and returning an item to their shelves. Many customers bristle when they learn that they will be charged. If you discard the original packaging the item came in, these fees may escalate even further! Be especially careful for any item that is shipped in a crate!
Return shipping. The question of who pays the return shipping for returned items can be found in the warranty information or the terms and conditions from your vendor. The short version is that if it’s your mistake, you pay the shipping.
Don’t be a sample abuser!
Most customers apparently feel that if they ask for or accept a free sample that they are under no obligation or expectation to either do anything with the sample or answer the question, “How did you like it?” A sample of an item can be a great way to reduce sourcing errors. Unfortunately there are a lot of people who request samples with the same frequency that they take candy and pens from booths at trade shows.
Some simple rules to follow:
- - If a vendor offers you a free sample, just say no unless you plan to give it a proper evaluation.
- - If you initiate the request for a sample then accept the fact that you will be expected to actually evaluate it and, if asked, tell the vendor providing the sample if it met your needs and if you plan on buying it. If not, tell them that too!
- - If you like the sampled item and want to buy it, don’t wait on the vendor to contact you - reach out to them!
- - Treat vendors the way you want to be treated and you will be rewarded for your kindness.
We all make mistakes. But we can all take steps to learn from those mistakes and avoid making them again. At LPS, we have set up systems and checks to ensure that when you place an order with us that your order will be processed without errors.
This is not my standard format for a monthly newsletter. We will return to that format in August. I hope that these observations may help you save money by avoiding some of the P2P potholes in your ordering process!
Founder & CEO