Why Do Small Business Need a Supply Chain Tool

Typical Supply Chain of a Small Business

On the left is a typical small business doing business in USA. The supply chain operation goes like this

• They have larger retail stores like Amazon, Walmart, Target as customers
• They have manufacturing unit or contract manufacturer located in China

• Warehouses located along the East or West coast managed by the company or 3PL
• The only tool available to manage this entire operation is QuickBooks

This is a typical scenario. As the supply chain of larger corporations are fully automated, they expect the same level of precision and efficiency from their supplier even though the suppliers are smaller and do not have deep pockets to have an expensive supply chain management software.

Supply Chain Penalties

One of the conditions insisted by larger retailers  is that Suppliers should inform  within 30 minutes of shipping or 4 days before the arrival of the shipment. If the small business owner misses to do this, a charge back is made to the account.

That needs the business owner to be top of this supply chain always and monitor when the material is shipped from his warehouse or 3PL warehouse. Only a supply chain automation tool can do this automatically so that the shipment notice is not missed.

Electronic Integration in Supply Chain

Retail giants like Walmart, Amazon  and Target recommend their suppliers to be electronically connected to their systems using EDI (Electronic Data Interchange) standards. Refer this article on Role of EDI in Supply Chain. Logistics provides and transporters also expect their customers to be electronically integrated to their system with customers. This needs a good supply chain tool to manage the electronic Integration.

Manual transaction processing

Managing the operations with Email and spreadsheets are becoming more and more difficult for small businesses. As the volume of operation increases, it becomes like 100 - 200 transactions to be handled every day.

• Customer Orders Entering into System
• Inventory level monitoring at Warehouses
• Issuing purchase orders to suppliers
• Entering shipment data into Vendor portal of customers
• Informing Warehouses for customer orders shipping
• Entering supplier invoices into system
• Entering invoices into Vendor portal of Customers

Supply Chain Management Software are Affordable now

Few years back, supply chain software were very expensive and were affordable only for large corporations. Millions of dollars were required as investment and it took many months of consulting effort to implement a supply chain management tools. These software were out of reach for small business.

But now it has changed due to Cloud and Saas based offerings. Many software are available in the cloud that cost as little as a thousand dollars investment to start with and few hundred dollars monthly. to manage. For example the supply chain app TPSynergy (www.tpsynergy.com) provides the software capabilities needed to manage the supply chain and also it connects to QuickBooks online and Desktop.

Automatic Supply Chain Management

What a supply chain management tool can do for a small business. What to look for in a software when considering to subscribe to a software.

EDI capability. 

Supply chain software enables small businesses to scale up the business volume with larger corporations. 

Automatic Order Processing: 

Customer orders are automatically processed into the back end system. For example Sales orders will be created automatically.

Monitoring and Alerting : 

A good supply chain software monitors the entire supply chain for compliance issues and alerts. For example if a shipment is not made in time when it is due, the software alerts the concerned to take immediate action. Also when a shipment is made, Advance shipment notice is sent electronically to the customer's system. Invoices are sent electronically in time so that no payment delays  in the cash flow process.

Conclusion

No matter what is the size of the company, they are part of a larger Global supply chain today. Buying from or Manufacturing from other part of the world is essential. Many intermediate and third parties are involved in the supply chain. Supply chain is complex and needs a tool to manage the same. A good software is very essential to manage the supply chain operations today.

With the software prices very affordable in today's world, there is no reason for small companies to be left behind in the supply chain competition world. Businesses compete on their supply chain today and small business need a software tool to fight the competition.

Integrating QuickBooks to External Systems

QuickBooks Integration

QuickBooks and External Systems

QuickBooks is the most widely used Accounting Software in Small and Medium Businesses. What was a simple accounting book keeping system has progressed to a full ERP and Supply Chain Management System. Check this article on how QuickBooks is being used in Supply Chain Systems. QuickBooks as Supply Chain Management Solution

Integrating QuickBooks to External Systems

Many a times it is necessary to get the data into and out of QuickBooks in a bulk. For example if you are a supplier selling to Amazon, Amazon will send EDI (Refer this article on EDI ) messages for Orders. It is necessary to post them into QuickBooks automatically. If there are only few orders to be managed, it can be entered into QuickBooks manually. But if there are hundreds of orders to be processed, it is not possible to do it manually. You will need an automated solution to manage the Orders. 

Similarly, data between QuickBooks and External CRM system or sales portal needs to be synchronized.

Integration Methods

Integrating to QuickBooks depends upon if it is Online Version or Desktop Enterprise version

Integrating to QuickBooks Online Version

   QuickBooks Online API  is the easy method to connect to QuickBooks Online version. External applications either cloud based on on premise can use the API to access QuickBooks Online and extract data and post data.

Integrating to QuickBooks Desktop Version

QuickBooks Web Connector

The challenge with desktop version is accessing the company by external systems outside the company network. While the online version is hosted by Intuit in the web, desktop version is maintained by the user within their company network.

QuickBooks provides a solution called 'Web connector' for this. Web connector is a small windows based application that runs inside the company network. Either on the same machine where QuickBooks is installed or in another machine within the company.

This web connector can call any external applications and transfer data in between.

The Web connector provides an intermediate connection between the external system and quick books desktop.

As the web connector only calls the external system and external system can not start the call, this connection is secure and safe to use.

What the Integration can do

It is possible to exchange a variety of data between QuickBooks and External systems.

For example, 

1. Purchase orders from customers like Amazon, Walmart will be posted as Sales orders into QuickBooks.
2. Products and Inventory maintained in QuickBooks will be synchronized to online web stores like Shopify, Amazon or other market places.
3. Sales made in external websites will be posted as customer receipts into QuickBooks
4. New customers acquired through other CRM tools will be created as customers in QuickBooks.
5. Invoices created in QuickBooks will be electronically sent to customers like Amazon,Walmart through EDI.

How QuickBooks users should develop these Integrations

It is not necessary to reinvent the wheel. There are many Intuit certified apps out there that can do all the integrations mentioned above. For example if you need to accept EDI messages from your customers and send EDI invoices, TPSynergy  as listed in the Intuit QuickBooks EDI App is a good choice for ready made EDI integration.

QuickBooks and Supply Chain Management

 

QuickBooks had always been considered as the best accounting software for small companies. It  was considered  as Expense and Income tracker and nothing more than that. Companies were looking elsewhere for more advanced  ERP and Supply chain operations. 

QuickBooks has started breaking that image few years back and started offering a complete ERP Solution including supply chain management to its customers. Customers with QuickBooks are thinking beyond the boundaries of Bills and Receipts when they think about QuickBooks now.

Refer this article on ERP Systems and Supply Chain Systems.

Let us see how QuickBooks is offering end to end  solution for Supply Chain Management for Small and Medium Businesses.

Buy Side of the Supply Chain:

Purchase Orders

Buy side of the supply chain starts with Purchase Orders in QuickBooks. A purchase order is created and sent to the vendor. Purchase order in QuickBooks consists of Header and Line items. The header has information like Vendor name, Vendor address, Payment terms etc. The purchase order lines will have details like products ordered, quantity,requested date, price etc. 

Purchase Order Receipts

When the material is delivered by the supplier, purchase order receipts are created in QuickBooks. If inventory is used, stock quantity is increased by the receipt quantity. Subsequently when supplier sends the invoice (called Bills in QuickBooks), QuickBooks will match the invoiced quantity to the received quantity to ensure payment is made only for the quantity received.

Sell  Side of the Supply Chain:

Sales Orders:

Sales orders are the customer's purchase orders entered into QuickBooks as Sales orders. Normally  in QuickBooks,  income is posted as Invoices or Sales Receipts depending upon if the payment is received fully or at a later date. 

Sales orders are entered into the system before the material or service is delivered to the customer and invoices are created. Sales orders are the best way to capture customer commitments into the system so the deliveries can be planned.

Sales Order Shipments:

When it is time to deliver the material and fulfill the sales order, it is executed in three steps in QuickBooks

1. PickSlip printing
2. PackSlip printing
3. Invoice Generation

Pick Slip:

Pick Slip are the documents used for preparing the material for shipments. It is also the document that tells the warehouse what to pack and keep ready for shipment. If inventory is used, the pick slip will give details like what is the quantity needed and where the material is currently located in the warehouse.

PackSlip:

 

Pack Slip and shipping label are used for the actual shipment. The pack slip gives details like what is packed inside the container.

Invoicing:

Invoicing is  the last step in fulfillment process. When invoices are created, QuickBooks deducts the inventory from the current stock.

Back Ordering:

 If the ordered quantity is not available at the time of shipping, warehouse may back order the quantity that is short. This is done by entering the actual quantity that was shipped while creating invoice.

It is possible to print the pick slip again at a future date when quantity becomes available. Customer is invoiced only for the quantity that is shipped

Conclusion

QuickBooks is providing  a very affordable and easy to use supply chain system for small and medium businesses. Most of the so called Tier 1 ERP system needs a huge budget to implement and support. Efforts of QuickBooks to simplify the systems and make it affordable for small business is a huge welcome in the market. Also by using applications from Intuit partners like TPSynergy Supply Chain solutions  it is possible to provide a full fledged Integrated supply chain system with QuickBooks as the back end financial system.

 

 

Mobile Applications in Supply Chain Management

Mobile Apps in Supply Chain

Mobile Apps are Not for Inventory Alone

When we say mobile apps for supply chain, the first thing that comes to mind is Inventory Management. Most of the warehouse management system (WMS) have mobile devices for tracking inventory, scanning stock etc. But that alone is not mobile apps in Supply chain. It is more than that.

Supply Chain Quick View

As the supply chain manager, can you instantly say, - how many of your material deliveries from suppliers are on time or how many are expected delays. 

Normally, this kind of information needs you to log into your company network, connect to the ERP system, run multitude of reports, navigate into multiple screens and then come out with an answer to the above question. 

But with mobile applications, it is possible to answer such questions while you are on the phone with your vendor and having coffee in a restaurant. 

That is the power of mobile applications in supply chain.

Supply Chain Dashboard in Mobile Apps

Supply Chain Dashboard

Refer the typical supply chain dashboard provided by a Mobile Application for supply chain. It gives all the information needed by a supply chain manager at one glance.

Alerts :- This tells what the Supply chain Manager needs to focus at this point in time. It could be delayed shipments, Supplier late response or Inventory shortage etc.

Orders:- This tells the status of various orders in the system. How many are over due, how many are pending shipment, How many are cancelled etc.

Shipments :- This tells the status of shipments expected this week. How many shipments are overdue. Where the shipments are currently due.

Inventory :- This will tell the current inventory picture of the entire supply chain including upstream inventory at vendor locations and downstream inventory at Retail outlets. 

Dashboard :- This gives the details of current business trend including supply chain transaction volume and business metrics like On time delivery (OTD)

Drill Down Into Details

While the summary of the Supply chain is available at one quick glance, it is possible to drill down into the details as per individual roles and functions. For example a Material manager may be interested in viewing how much of inventory of a particular item is in a particular location warehouse

 In the Mobile app shown on the left, it gives a quick summary of all the items on stock and the current inventory availability. It gives a summary picture for the inventory manager. Also it is possible to search for a specific inventory item and also narrow down the locations by Country , state and city

The picture of a mobile app for supply chain on the left shows that the inventory manger can have a quick look of the 

• Current On hand quantity
• Average Daily Consumption
• Day of Supply Left out
• In transit Quantity

These are vital information needed by any supply chain manager. If they see the number of days of supply going below the optimum level, it is a red alert and needs immediate action.

Mobile App for Suppliers

Mobile App for Suppliers

Mobile apps are useful not only for the receiving side of the supply chain . But also from the selling side of the supply chain.

With a mobile app that is connected to the supply chain, sales executives and fulfillment mangers are on top of their customer questions.

1. Where is my order
2. When is it expected
3. How much stock is available right now

All these questions can be answered by the sales executive in few touches and not needed complex reports from the ERP system. Mobile app adds power to the execution and fulfillment effective.

Conclusions

Mobile Applications in Supply chain is gaining importance. Conventional ways of managing supply chain using reports run from ERP is giving way to mobile applications. Mobile applications gives instance access to vital information at the finger tip. With cloud technology, and Saas (Software as Service) applications, companies need not develop the supply chain mobile applications by themselves. They can leverage pre-built applications like TPSynergy to manage the supply chain and provide a mobile application solution for the supply chain.

Automated Material Receiving - Saving Time and Money at Receiving Docks

Material Receipts - Last Mile Stone

Material receipts are part of the last milestones in the Supply Chain Journey. The material has traveled a long way from say China and it has reached your docks. The truck is waiting outside the gates and the material has to reach the assembly line or shipping line to be consumed at the earliest.

How fast and accurate material is received makes difference in the supply chain efficiency. We have seen cases where the material was air lifted from China to reach US shores in one day and then it reaches the docks the same day. But for the material to reach the assembly line, it takes another 72 hours due to the process constraints like counting, Inspection etc. This is not efficient use of the resources. Every Supply chain manager should consider how the time can be reduced in the receiving process. 

Post Processing Lead Time

Time taken for the material to be available to the final consumption point from the time it reaches the receiving docks is known as Post processing lead time.

I have seen planners including 20 days of post processing lead time anticipating the lengthy and time consuming material receiving process. Automating this material receiving process improves the supply chain efficiency greatly.

Advance Shipment Notification (ASN)

Advance Shipment Notification is the electronic notification sent by Suppliers to Customers informing them what is on their way. ASN typically will have

• Customer Purchase Order Reference Number
• Items Shipped in that shipment
• Quantities
• Carrier tracking number
• Expected Delivery Date

these information are vital for automating the receiving process. With ASN, receiving organization is able to know well in advance even before the truck arrives at their facility. If they notice any discrepancies, they can alert the supplier and ask for corrective action immediately. For example if they are expecting a shipment of 100 numbers of an item and the ASN has only 50 in it, it draws a red flag and corrective actions are to be triggered immediately.

ASN Data and ERP 

Most of the popular ERP Systems like SAP and Oracle are designed to manage ASN data.The ASN data is marked as pre-receipt data so that when the actual material arrives, it can be reconciled and received with few clicks and keystrokes instead of entering each and every line quantities.

ASN data from suppliers can automatically be imported into the ERP system so that it will be ready for the actual receipt. Each ASN from the supplier will have a shipment reference number also known as ASN number. If the data is already electronically loaded into the ERP system, it can be matched by entering the ASN number. 

So the receiving dock need to just enter the Shipment number found in the shipping document and it will pull the complete data of what is contained in the shipment. So the receiver need to just click yes if the quantities matches. This will reduce the time taken to receive the full container load of items in few minutes.

RFID and Automated Receiving

RFID technology is the latest trend in Supply chain management. RFID saves considerable time in handling , tracking and receiving material. RFID label printers like Zebra RFID can print unique tags in a special label paper that contains RFID tags embedded.  Suppliers are asked to use the RFID labels in all the packages. So all the packages both inner and outer will have the RFID tags included. RFID tags can be placed on metal components also. 

The advantage of RFID is that RFID data for all the tags can be collected without even scanning the items. So assuming a truckload of delivery contains 500 boxes each containing about 500 individual items. Physically counting them will take hours and days to complete. With RFID scanners and RFID tags, the entire truck load data can be collected within few seconds. So the full truck load of items can be counted and received within few minutes.

This will be a huge savings in the time taken for material receipts.

Conclusions

Receiving material is the last milestone in supply chain process and this can be a major time consuming event in the entire supply chain process. Automating this process reduces the overall cycle time and improves efficiency. The reduction in receiving time will start from the suppliers. Suppliers are expected to provide advance shipment notification electronically in advance before the shipment arrives at the docks. Using RFID technology reduces the receiving time drastically. Using a automated Receiving portal tool like TPSynergy  improves the overall receiving process.

B2B Supplier Onboarding - How to Make it a Success

Supplier On Boarding

B2B Integration Projects

Many companies start their B2B Integration initiatives in a big way but never finish like Sagrada Familia project.

Objectives of B2B Integration Project

The main objectives of B2b Integration project will be to get the Purchase Orders, Purchase Order Acknowledgements, Advance Shipment Notifications, Invoicing electronically integrated to Suppliers. This will result the supply chain to be very efficient and manual work of re-keying in data into multiple system is avoided.

Supplier Community Participation

But this project needs participation and buy-in from the Supplier community. Larger organizations may easily comply to this electronic integration requirement easily as they do have the needed IT infrastructure and means to electronically integrate to customers. But smaller organizations may not be able to commit the time and resources for the electronic integration. Their business volume may not justify spending on IT consulting and development for electronic integration.

New Supplier Onboarding

Also companies keep adding new suppliers every month and hence on boarding of suppliers electronically is always a moving target. 

Companies may not even reach 50% of electronic integration with their suppliers.

Improving Participation from Suppliers and Making the Project a Success

How to improve this rate of B2B on boarding and make it easy for suppliers to on board.

1. Make it as easy is as possible for suppliers to on board. Provide them less complex tools like Spreadsheet data format rather than complex EDI format for integration. It is easy to ask the supplier to send an invoice in Microsoft Excel format or CSV format rather than EDI 810 format.
2. Provide them an option to enter the data manually in a web portal and your company can get the data from the portal in electronic format. So that suppliers can spend few extra key strokes to send data to you and become B2B compliant.
3. Provide mobile applications so that smaller vendors can respond directly from their mobile phones. Small suppliers will generally have one decision maker and they can decide if they can deliver on the date requested and click a button on their mobile app to confirm they will deliver. It is much easier for them to respond on a mobile rather than asking them to login to a web portal and accept an order sent by you.
4. Provide easy to use software capabilities to the suppliers. Provide them free tools like file transfer utilities that will send data from their system to your system electronically.
5. Provide free training to suppliers on the B2b integration system you are using and how to use it.
6. Create a open channel between the suppliers and your IT /Service provider so that suppliers can reach to them for any help
7. Keep changes low to avoid rework for the suppliers.
8. Add incentives like priority procurement ranking goes up if suppliers are electronically integrated.
9. Use an easy on boarding tool like TPSynergy.com (www.tpsynergy.com)  instead of building your own solution.

Success

with all the above it is possible to reach an B2b on boarding level of 80% and above. Wish you good luck in your B2B On boarding program

How to save Material Cost in Supply Chain

How much is 1% of your total Material Cost?

A typical manufacturing company spends 60-70% of its total revenue in direct material procurement.

If your company has a revenue of say $100 Million, 60-70 Million could be spent on direct materials. 1% of it is $600-700 thousands. That is lot of money to let go loose due to poor communication in Supply Chain.

The below scenarios appears to be simple and part of day to day operations of a company. But it all add to your material cost and can easily be avoided.

How to Automate Sourcing Process and Reduce lead time

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

1. Pre-Processing Lead Time (PPL) :- This lead time is needed for sourcing, negotiation and order release
2. Processing Lead Time (PL) :- Time taken by the Supplier to manufacture  or process the material and get it ready for shipping
3. 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.

Procurement 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 Blanked 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.

Frequent Sourcing

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.

How to Make your suppliers Deliver on Time – Always.

Every supply chain managers most important task is to ensure the Material is there – where it is needed and when it is needed.
Having said that, it is not easy to do it every time right. There are many links in the supply chain and even if one link breaks, the chain breaks. One of the important link is that the supplier delivers on time as needed by the purchasing process.

How to Improve Customer Satisfaction – Perfect Order Execution is the key

In this time of severe competition, cost of gaining a new customer is very high. Imagine the cost of losing a customer. It is sky high. But companies loose customers every day as an imperfect order execution leads to losing the customer.

Why should companies provide a Vendor Portal for its suppliers

Why should companies have their own vendor portal to manage their suppliers.






A few of the benefits enabled by the introduction of supplier portals include:

• Broader Supplier Enablement – Portals enabled a new tier of suppliers to automate routine supply chain execution transactions such as purchase orders, ship notices and commercial invoices.  EDI had gained a critical mass of usage amongst larger companies.  However, smaller businesses often struggled to find the resources, budget and in-house expertise to implement EDI.  Portals filled the white space in the market quickly.  Anyone with a PC and an Internet connection could connect to a portal with minimal training and investment.  As a result, the barrier to entry for e-commerce was lowered enabling tens of thousands of small suppliers to interact with customers electronically.

• New Business Process Automation – Portals enabled a new group of business processes such as strategic sourcing, collaborative design and demand planning to be automated.  Historically, these processes occurred over the phone, via e-mail correspondence or in face-to-face meetings.  Due to their complex nature these supply chain practices were too sophisticated to automate through machine-to-machine transactions.  By moving these processes on-line, portals reduced not only the cost of these transactions, but the latency of information sharing and the barriers to adoption.

• Supplier Self-Service – Portals offer a lens into the buyer’s ERP system.  Inquiries that would need to have been conducted via a time-consuming game of phone tag could instead be performed with just a few mouse clicks. For example, a high percentage of the call volume to accounts payable organizations is from collections personnel in the supplier organization attempting to determine when an invoice will be paid.  Portals offer the ability for suppliers to perform self-service inquiries online whenever they need to know the status of an expected payment.

• Collaborative Processes – Portals provide both supplier and buyer a single, shared view of data. Historically, personnel from buyer and the supplier each viewed data in their own business applications which were hopelessly out of sync.  With portals both supplier and buyer share a common view of data such as performance scorecards.  The newfound visibility enables the two parties to collaborate on corrective actions to improve overall supply chain performance.  Dispute resolution is another process which benefited from the shared view on a portal.

• Change Management – Supply chains are constantly changing.  Buyers open up new distribution centers, manufacturing plants and retail stores, which changes routing guides.  As business process re-engineering occurs, new and improved forecasting, purchasing, labeling, shipping and invoicing procedures are introduced.  Portals provide an online resource for buyers to communicate changes to contact details, routing guides and business processes to the supplier community.  Historically, these changes had to be communicated to each supplier through direct mail, phone conversations or vendor conferences.

TPSynergy.com   provides an easy to use instant vendor portal companies to launch their supply chain collaboration platform on the cloud. Case Studies provides detailed scenario how the portal solution can be used.

Global Supply Chain Network - How to Manage it

Global Trade Management (GTM) 

Routine reliance on an extended global supplier network has resulted in a more complex and lengthy procurement process. Emails, phone calls and faxes simply don’t support the collaboration between buyers and suppliers that is required for successful global trade.

How to start E-invoicing and avoid paper invoicing

Receiving Invoices by Email , Fax or Mail and entering them manually into your system is an unproductive use of your Accounts Payable resources.

Automate your Invoicing process. Suppliers should be able to send their invoices in electronic format like EDI messages and it should get automatically processed in your Accounts Payable (AP) system.

Hidden Profit in Raw Material Procuremet

Profit from Raw Material

If your outsourcing part of your manufacturing or procuring semi finished or fully finished material from external vendors, you have hidden profit that can be uncovered and add to your bottom line.


Larger manufacturing  corporations   have a system whereby their contract manufacturers will procure raw material through them and not from the suppliers directly. For example a computer manufacturer may insist that their subcontractors (EMS) procure the hard disks from them instead of procuring directly from Seagate or Hitachi. As they have larger volumes of procurement, they negotiate a better price with the component suppliers and get profit from their raw materials.


While the purchase order is released by the manufacturer, delivery is directly to the sub contractor. This is called Drop Ship in Supply chain terms. Also it is to be ensured that the price at which the material is procured is masked. This is called Price Masking of procurement prices.


There will be two billing involved. One will be from Manufacturer to Subcontractor and one from Component supplier to Manufacturer. The margin between these two prices is for the Manufacturer to keep. This is hidden profit which otherwise will be lost between sub contractor and Supplier.


While it is easy to see the process at the outline, implementing this process will involve change management in the entire supply chain. Sub contractors and Component suppliers need to be co-ordinate and orchestrated well to get the right timing of delivery and prices. Also if the raw material are of exclusive design or exclusive nature, the manufacturer also needs to shoulder the responsibility of perish-ability or technology obsolescence of the material.


Forecasting accuracy plays a major role in this process. Both subcontractor and Manufacturer need to provide each other accurate forecast and current inventory position so that raw material ordering can be done efficiently.
The process of managing the raw material procurement on behalf of the Subcontractor needs a good common platform that will provide visibility to all the parties involved. Manufacturer should be able to see the current inventory position with the sub contractor so that they can plan the procurement of raw materials as needed. 

Also when suppliers ship the material to the subcontractor directly, Manufacturer need to be informed of the shipments so that they can do the necessary accounting transactions in their system. Return of defective material by the subcontractor directly to the Supplier also needs to be managed carefully as this will involve accounting implications.


TpSynergy.com provides a platform that can effectively manage the above Raw material procurement process and provide the visibility needed to all the parties involved.

Role of EDI in Supply Chain

EDI stands for Electronic Data Interchange. It’s a standard that has been evolved to integrate disconnected systems, such as the multitude of systems in the world of business.

In this world, each company uses its own systems to manage its business; the disconnect between these systems requires a common protocol that can help these systems interact well with each other. This standard, developed by a consortium of industries, is known as EDI.

Flows in Supply Chain Management

Flow in Supply chain management

There are various expressions to define supply chain management.  The one I like is, SCM is a total system approach to manage flow of Information, materials and money between Suppliers and Customers ‘ . Let us look at each of these flows in detail and also see how effectively used in Indian companies –

How to Extend your ERP System into a Supply Chain System

ERP – Enterprise Resource Planning had traditionally been considered as the system to be used only behind the four walls of an organization. With the Globalization of manufacturing, Outsourcing and lean manufacturing concepts, ERP can no longer act in isolation.

Control Tower in Supply Chain

Control Tower is the latest buzzword in the Supply Chain World. It’s also called the 360 Degrees view of your supply chain.

So, what exactly is Control Tower? 

When you are at the ground level, your vision is very limited; the big picture of the landscape around you is unknown to you. Now, imagine being able to climb a tall tower; your entire perspective of the things around you gets enhanced tremendously. 

A similar construct exist in the supply chain. Buyers, tied down to their day-to-day work, don’t get the chance to envision and understand the big picture of the problems facing them. 

Likewise, even supply chain executives, despite all their abilities, see only what the buyers see: a very limited and two-dimensional picture of the issues facing them. 

Control Tower is a software platform that aims to combat this limit in the vision of its users. This platform allows the buyers and executives to climb the metaphorical tower, so that they are able to see and fully understand the bigger picture.


A Control Tower platform provides end to end visibility of the entire supply chain. It features detailed information about demands, forecasts, current inventories, shipments in transits, expected delays, shortages, excess inventories, and more. 

Moreover, it provides all of this information in a streamlined manner and in a single place so that the user is able to get a very detailed top-down view of the issue at hand. 

The page also includes a dashboard view, which includes detailed graphical presentations, so that taking a quick view at the current situation is made a breeze.


The Control Tower platform is also easily accessible to the trading partners in the supply chain. The suppliers, logistics providers, transporters, third party warehouses, customers, inventory warehouses, retail agents, and anyone else involved in the supply chain all have real time access to the information.

Due to this, it is very possible for executives to make decisions that will easily improve the efficiency of their companies to a very great extent.
The major requirements of a good Control Tower platform are:

1. Easy to Access
2. Easy to Maintain
3. Available to all the parties in the supply chain
4. Monitors supply chain for exceptions like delays and raises an alarm well in advance
5. Provides Industry standard Key Performance Indicators and Measurements
6. Available on Mobile platforms so that people can access on the go
7. Latest technology based
8. Tightly Integrated to the main ERP / Accounting system

The next question that might be raised would be about how difficult it would be to develop a Control Tower platform for each company.

The easiest answer to this would not re-invent the wheel.The easiest answer would be to use a platform already easily available on the market. 

TpSynergy.com (www.tpsynergy.com) provides one of the easy to use Supply chain control towers. Check out the details at their website

Long Tail of Supply Chain

Many years back, I was working as a Planner for a large Machine Tools Building Organization. These machine tools were custom built long lead time high value CNC machines. Delivery to customer on time is critical as the customer's production commitments to their customers is linked to our delivery on time. 

Moment we get the customer order for the machine, we will start planning the delivery very meticulously. Purchase orders for long lead time imported items like controls and systems will be released in advance close follow up with suppiers will be done periodically. Everything will look good till the delivery due date comes close by ......

What will blow up on our face is the few hundred dollars sheet metal cover panels we would have ordered from a local vendor who is just 10 miles away. Either the delivery will be missed or the quality is not up to standards. That will call for rework and missed delivery. Lesson learnt, the definition of critical item can be misleading. A seemingly low value low important item can prove to be the critical items.

We are all lead to believe that Peroto 80/20 principle applies to all sectors of business. Manage 20% of the vendors who supply 80% value of the material. We tend to neglect the long tail of the supply chain. The small vendors who supply 80% of the bulk of the material. A good supply chain should mange these vendors also very carefully.

Due to the number of suppliers who fall in this long tail, it is difficult to manage them individually. We need to have a system in place to manage and monitor these supplies. Some of the helpful practices are

1.                              Ensure that these suppliers acknowledge and confirm the receipt of your purchase orders. This will ensure that they are committed to the delivery. While email confirmation is good, if you can get them on boarded on to your vendor portal that will be better.

2.                              Pre delivery notifications - This is also called advance shipment notification (ASN). This will ensure that the suppliers are shipping the material in time and they provide needed documentation like quality inspection reports, product images etc.

3.                              Quality Feedback - It is necessary to provide periodical quality feedback to these suppliers and keep them engaged. Any quality feedback provided to these suppliers should be acknowledged by the suppliers and their action plan to improve on the quality should be recorded.

4.                              Performance metrics - There are many metrics on which the supplier should be able to constantly evaluation themselves. For example , on time delivery percentage, percentage of rejection, price trend over volume etc.

This kind of a closed loop system with not only your primary vendors but also the long tail vendors is essential to keep your supply chain engine running smoothly. To manage efficiently the suppliers in long tail of your supply chain, you can use one of the best supplier portal available in the market.