Most suppliers in today’s high tech information rich environment have the ability to know what you order, when you order, how often you order, how often you return an order and a plethora of other information that provides a profile of what kind of customer you are. What ends up being the result of all this information is a concept many suppliers use as a factor for how they ultimately determine your price for their goods and services, it’s called “cost to serve”. Part of the profile is affected by ordering habits like last minute ordering. Last minute ordering makes your supplier jump into overdrive to meet your delivery requirements and causes increased costs to your supplier, overtime for both service representatives and warehouse and delivery personnel , additional freight costs and logistics support are a couple of costs to consider. Ultimately your supplier has to recover these additional costs either by up charging on the “emergency” or “expedited “order or if it seems to be a chronic issue, by raising your overall pricing profile to compensate for the increased “cost to serve” over your overall spend.
Another unintended consequence of the last minute order occurs because suppliers will tend to make more mistakes when the time between request and fulfillment becomes compressed. In order to insure customers get the products they ordered, at Columbia Specialty at least 2 people check each line item on the order to make sure it is correct, One person pulls the order another person checks and packs the order and a supervisor (a third person) spot checks accuracy. Admittedly, this process is not necessarily followed with a “last minute” order because the time frame for delivery may not allow it. The consequences sometimes end up being incorrect material finding its way to the project and delaying installation and completion, costing both the customer and the supplier more money.
Last minute orders also cause more backorders. Your suppliers, any and all of them, almost never have everything on the shelf exactly at the time you are ready to order. We do our best using very sophisticated computer software to forecast when and how much our customers will need for their requirements but often we do not have the ability to look into the crystal ball and know just what the next project will need. We do however utilize every resource to fulfill your requirements as fast as we can, including an army of manufacturers, master distributors and yes, even competitors to get what you need to where you need it. The emergency order cause’s suppliers to fire up trucks, call out or hold open master distributors, cross dock materials and make many special arrangements to get your material to your location complete and on time. The definition of “complete” many times is determined by how much you want to spend.
Lost in translation… many times costly mistakes are made during last minute orders because buyers and sellers don’t have or get the time to analyze the details of the requirements before performance is necessary. Many times lists for materials of all shapes, sizes, and specifications will come in and require many more questions be asked and answered before an order can be placed and there are often many options to consider. But at the last minute it’s all about time! If we get it wrong both the customer and the supplier usually suffer, but usually mostly the customer suffers. They (you?) don’t get what you need or what product will actually work, or even actually help to make you more money. But you have ordered the product and now it’s yours to keep or maybe return…at a cost. This also increases the dreaded pallet loads of excess materials that are often left over at the end of the project that must be returned, at best costing restocking charges or worst case, scrapped and disposed of at the end for cents on the dollar.
Finally, companies that have this tendency in this part of their business almost always have these tendencies that exist throughout other departments and processes in their business as well. So if it is happening in material requisition, it is probably also an issue in labor or engineering or project management and even accounting.
The core of the “last minute” problem rests in the planning process and there are companies that have made some specific positive steps that eliminate or neutralize the negative effects of this problem.
First, make planning a priority process within your company; in fact one of the ways to insure it becomes a priority is to include it as part of your quality program. Include measurements in your program that indicate how often you require suppliers to make next day or same day deliveries (realizing the costs associated with this service level). Set policies that address planning including the possibilities of giving all of your suppliers a prescribed reasonable allowable timeframes to perform as a supplier for your company, anything else would be considered an “emergency” which would be measured and reported to you.
Second, partner with a minimal amount of suppliers and choose them early in the process. Your suppliers should be an extension of your staff, in order to get the most out of them, they need to be motivated by the same things your actual staff is motivated by; They need to make money, they need to believe they are important to you and they need to be respected for the value they help bring to your bottom line. The reason to partner with a minimal amount of suppliers is that you need to be important to your suppliers. If you spread your business among too many you will be important to none. Early in my career I learned from my mentors to “Use the best and forget the rest”, there are too many benefits from using the best suppliers to mess around with the others to “save” a few dollars. The best usually will always be looking out for your interests; they will be as concerned for your profits as they are for theirs. They will be looking for ways to help you eliminate problems like the last minute order as well as many others that will drive costs down and profits to your bottom line. I’m not saying only choose one, I’m saying choose the best, that may look like two or three but seldom more than that and sometimes in order to be important it will only be one very qualified vendor who you trust.
Finally, choose them early because they need to be involved from the beginning in order to have the opportunity to save you money. Have your suppliers involved throughout the process of estimating, engineering, specifying and servicing your projects. Make sure your supplier has your original material take offs from the beginning of your project so that you give them the ability to plan for your needs. This gives them the ability to help identify all the factors that might cause problems during your project. When you have this type of supplier relationship they will exhibit these behaviors: They will plan to make you succeed, they will identify ways to save you money, they will standardize your products so that the costs of returns are minimized, they will drop everything to take care of your problem (since it seldom happens), they will give you the best pricing possible because you cost them the least to do business with. Finally they will value you as a customer and partner because you are the reason they exist and prosper.