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Traverse Systems Corner: The PO Lifecycle is Key Concept in Vendor Performance Management

By: Richard Wilhjelm, VP Sales and Marketing, Traverse Systems

Jan. 29, 2020

An essential element of ensuring on-time/complete performance is measuring and understanding the retail or wholesale purchase order lifecycle - and anticipating risks before they occur.

Chronologically speaking, the purchase order lifecycle (POL) is the amount of time it takes a retailer/wholesaler to create and receive a purchase order. While the calculation appears simple, the ramifications are significant from both an operational and financial perspective.

The POL isn't just a calculation, it's a book that tells the story of a company’s supply chain performance.

Traverse Systems Says...

By identifying and then reducing the purchase order lifecycle, retailers and wholesalers can significantly impact their organization's overall performance.

Taken individually, each purchase order describes an event and a timeframe. Purchase order #123 took 23 days and we received 7 widgets. Taken collectively, the purchase orders create a consistent pattern of performance that can be leveraged to make future buying, operational and financial decisions.

Vendor ABC was on-time 98.9% of the time and had a fill rate of 96% during our peak season - information that can be used to mitigate vendor risk. Understanding your vendors' past results is crucial to predicting their future performance.

However, while the value of measuring purchase orders in aggregate to create the PO lifecycle may be apparent, how and what data elements to capture may not. What data elements are needed to develop these metrics?

Avoid measuring performance based simply on the data that is readily available. The right analytic tools can identify relationships in the data and spot emerging trends that may not be clear in a standard report.

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Obviously, the more we can capture, the more clear our picture of our vendor's overall performance becomes. Common elements in PO life cycle reports include PO create date, start date, stop date, ASN date, pick up date, ship date, arrival date, troubles (shipments) and audits, just to name a few.

If retailers and wholesalers can capture and aggregate this information, they can identify vendor performance patterns (and opportunities) such as average create to start, average create to stop, average create to ASN, average pick up to arrival and average arrival to first receipt. Once we see the vendor's overall performance, we can easily identify the areas of opportunity and reduce the overall PO lifecycle.

Generating Value

As a supply chain professional you may be asking yourself, why should I measure the purchase order lifecycle? It sounds tedious, time consuming and I have 10 other "high value" projects sitting on my desk. The answer is simple - "that's where the money is."

Retailers and wholesalers invest significant sums of money in safety stock or additional supply chain days to ensure merchandise is available on the shelf. Much of this safety stock could be eliminated if the retailer had a detailed understanding of their purchase order lifecycle.

By understanding the individual elements of the purchase order lifecycle and the time required to complete them, the retailer or wholesaler can leverage the information to reduce supply chain days. Traverse Systems recently worked with one retailer that was able to take two weeks of inventory out of its supply chain by better understanding their purchase order lifecycle.

By identifying and then reducing the purchase order lifecycle, retailers and wholesalers can significantly impact their organization's overall performance.

Financial benefits a retailer can expect to receive include a reduction in overall working capital, a reduction in DC expenses and inventory carrying costs, and an increase in return on invested capital (ROIC).

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