Eliminating Cost From The Supply Chain
We recently had a business review with one of our primary medical-surgical distributors. During that review, we covered the number of purchase orders processed (825), the dollar amount per purchase order and what that actually translated to for our organization.
The bottom line was that, though we spent a little less with this vendor in 2015, we had a decrease of 20% in purchase orders submitted over 2014. ENVI, working in concert with instruction from the Purchasing Department, has helped our 12 clinical locations streamline orders. Each site places an order once weekly and knows which vendors to buy from, utilizing the priority feature under the vendor tab. Due to stringent strategic sourcing,we were able to reduce our overall orders by buying the right item, from the right source, at the right price. Additional savings were found by processing these orders with EDI. According to the Center for Advanced Purchasing, the average cost of processing a purchase order is $97.44. The National Institute of Supply Chain Management found that just by automating your supply chain you can reduce that by 42%.
Using the figures above, from the NISCM:
1. By processing the 825 purchase orders traditionally, our estimated cost would have been $80,388
2. By using EDI, our estimated cost to process these same orders was $46,629 (savings of approximately $33,759)
3. In addition, we reduced our overall number of orders from this vendor by 195, eliminating an approximate $11K of cost from our supply chain.
Summary of Best Practices
- Use the priority feature in ENVI to direct which vendors you buy which product from (nimble strategic sourcing).
- Set an order and ship schedule, especially useful if you have more than one location.
- Use EDI as much as possible to reduce the labor needed to process purchase orders.
- Run a “PO Backorder” report every Friday to follow up on any non-received items. This is an effective way to stay on top of outstanding orders, managing DPO effectively to avoid late fees and/or finance charges.