Purchasing Process Out of Control

[piney]

I recently joined a company in a district where there is no real refined purchasing process. We are a service company where there are several field crews working at the same time, and a job administrator supporting them in the office. When one of the field supervisors requires a PO for a service or materials he will call in to the administrator for a purchase order number. At this point the costs of the materials or service may not be known so an estimate is entered under the PO with a brief description. Final costs of the PO don't get updated until an invoice comes in.

As a PM this it is very difficult to manage committed costs on the project when:
1. There are several PO's being issued to suppliers by each supervisor for different materials and services throughout the day/week.
2. Sometimes a PO # will be used twice for a supplier but for different services.
3. We don't get final costs for a PO until up to a month later when the supplier invoices us.
4. Often a PO will be issued but the costs not coded to the correct cost code within the project.
5. I'm ready to jump out the window...

Since there is no purchasing department for our district, and no real defined purchasing process, I am faced with coming up a process that gets this situation under control. I have thought about having all PO's go through an approval process (by me) before they can be issued but this would mean my phone would be ringing off the hook during the day, and my email inbox would quickly go over limit. I believe the solution would be establishing a process/procedure (whatever that may be) and maintaining discipline across the users.

Thanks in advance for any help.

 

[mmagargee]

" I have thought about having all PO's go through an approval process (by me) before they can be issued but this would mean my phone would be ringing off the hook during the day, and my email inbox would quickly go over limit"

Hopefully you put that thought out of your head. Has your company considered issuing credit cards to the remote supervisors so that the credit card company does the invoicing and gets the urgent purchases under control?

In our company, we issue purchase orders to companies that we have terms with. That means that all of the vendors have to have been setup by accounting. Our purchasing department will not issue a P.O. until the price is known, either by quote (adding lead time) or submitted by the requestor from catalog (usually online) pricing. The invoice can only be paid if there is a three way match between the P.O, the receiver, and the invoice. These are pretty standard accounting rules, so I'm surprised that your company could have the disaster that you describe.

If urgency is demanded that can't wait for a P.O. to be issued (anywhere from a few hours to a day or two), the item is typically purchased by credit card.

Another thought. Are these field people always buying the same items in varying quantities? If so, has your company thought about setting up blanket orders with scheduled shipments, or that can be pulled from?

Last, if these are just large blanket jobs, are you dealing with a contracting company to pay all of the sub invoices? If so, can't P.O.s be assigned by them with guestimates or not to exceed amounts?

Mike

 

[RoxaneB]

Something to consider is various levels of purchasing. By setting up agreements with your vendors you can establish a regular purchasing process.

Providing company credit cards to supervisors can support the development of an urgent purchasing process where they will need to enter in the purchases on a regular basis.

Then there is the emergency purchasing system - ie., if the item is not acquired, there may be an injury or unjustifiable shutdown. These purchases could go through you or your boss and the requesters need to provide reasons for the emergency.

Trend analysis on emergency and urgent purchases may show abusers of the system or people who don't plan well, allowing you insight on where to focus.

 

[Wilderness Woody]

I recently joined a company in a district where there is no real refined purchasing process. We are a service company where there are several field crews working at the same time, and a job administrator supporting them in the office. When one of the field supervisors requires a PO for a service or materials he will call in to the administrator for a purchase order number. At this point the costs of the materials or service may not be known so an estimate is entered under the PO with a brief description. Final costs of the PO don't get updated until an invoice comes in.

As a PM this it is very difficult to manage committed costs on the project when:
1. There are several PO's being issued to suppliers by each supervisor for different materials and services throughout the day/week.
2. Sometimes a PO # will be used twice for a supplier but for different services.
3. We don't get final costs for a PO until up to a month later when the supplier invoices us.
4. Often a PO will be issued but the costs not coded to the correct cost code within the project.
5. I'm ready to jump out the window...

Since there is no purchasing department for our district, and no real defined purchasing process, I am faced with coming up a process that gets this situation under control. I have thought about having all PO's go through an approval process (by me) before they can be issued but this would mean my phone would be ringing off the hook during the day, and my email inbox would quickly go over limit. I believe the solution would be establishing a process/procedure (whatever that may be) and maintaining discipline across the users.

Thanks in advance for any help.

Responding in reverse order 5...4...3...2...1

5 :mg: By all means, don't jump out the window... what would that solve!

4 If the items aren't coded correctly, do a RCA (Root Cause Analysis) and determine why. Perhaps there needs to be some training or refining the descriptions of what code gets applied. Who's responsible for determining the correct code(s) and documenting it?

3 Is this a real problem or just and inconvenience? If you need to know before receiving an invoice, then set up communication with the vendors to get it earlier.

2 How is PO duplication possible? Again a little RCA should show the problem such as poor software not refreshing or lax paper based system. Perhaps a blanket and release system would allow accumulation of activities under one project PO Number. If your coding system does not allow you to split out costs from a PO into different categories, then you may need to re-evaluate the system being used and modify it to work for you rather than against you.

1 Hmmm... sounds like normal business to me . If you need to differentiate between supervisors issuing PO's, consider providing them with separate number blocks to work from or use letter codes leading or trailing.

As others stated, defined emergency needs may require some leeway, but normal purchasing guidelines should be followed to ensure control and conformance to requirements. Define the lines of accountability with the staff and make sure they understand their responsibilities to do their portion in documenting purchasing request, release, coding, summary of service, costing, invoicing and payment. You're all part of a TEAM right?!

 

[piney]

Here is a summary of the issue and some of the root causes I've come up with. Corrective Actions will be next but would appreciate any thoughts the experts here may have! Thanks in advance!

"Purchasing process out of control affecting management of committed costs for the project and cost reporting."

Root causes:
1. No follow up with vendors once PO is issued to determine final costs.
2. De-commit PO's closed too soon when there are still invoices to come.
3. Field asking for PO's and no third party ticket for the work completed, sometimes too late or not at all.
4. Supervisors relying on an email invoice from vendor in order to complete third party ticket (this is how we record the costs for the subcontractors work and have client sign off).
5. Subcontractor personnel not proving field ticket with costs once work is completed for the day.
6. Late invoicing by subcontractor.
7. Subcontractor using the wrong PO # for the day's work.
8. More being discussed.

Corrective Actions:
1. In process...

 

[Wes Bucey]

Here is a summary of the issue and some of the root causes I've come up with. Corrective Actions will be next but would appreciate any thoughts the experts here may have! Thanks in advance!

"Purchasing process out of control affecting management of committed costs for the project and cost reporting."

Root causes:
1. No follow up with vendors once PO is issued to determine final costs.
2. De-commit PO's closed too soon when there are still invoices to come.
3. Field asking for PO's and no third party ticket for the work completed, sometimes too late or not at all.
4. Supervisors relying on an email invoice from vendor in order to complete third party ticket (this is how we record the costs for the subcontractors work and have client sign off).
5. Subcontractor personnel not proving field ticket with costs once work is completed for the day.
6. Late invoicing by subcontractor.
7. Subcontractor using the wrong PO # for the day's work.
8. More being discussed.

Corrective Actions:
1. In process...

Does it make you a little relieved to know your company is not alone in this situation? This is a common problem with far flung field service operations - Simply because there are so many variables in what an individual job may require and complicated by the fact of the cost of having employees standing around unable to work because needed material is not at hand.

Depending on the types of goods being purchased, I agree the concept of company credit cards is an excellent step (you may have to implement some safeguards to prevent abuse, but the credit card companies offer excellent advice on how to do that.)

An important factor to consider is the emergency nature of a purchase. A little story here might illustrate the nature of my concern:

Consider the difference between a handy householder and a professional plumber. The householder has "most" tools on hand, but has to go out and buy parts. Fixing a running toilet usually involves a simple replacement of the leaky flapper. So, before starting work, the handyman checks the type of flapper and buys one to have on hand. In some cases, though, the float may also have a leak and thus not float high enough to trigger the shutoff. However, handyman has another trip to the hardware store, where the plumber had enough experience to have one on hand to cover most types of toilets, as well as shutoff valves and connectors if he encounters corroded turncocks which need to be replaced.​

Part of the issue may be that the field crews are in the habit of Just In Time purchases of needed materials rather than traveling with a sufficient stock of material to the job site. Maybe the job estimate needs to be a little more comprehensive before the full crew arrives so they can bring required tools and supplies instead of purchasing AFTER arrival.

One important item to address is "floor limits" of purchases before the on-site supervisor needs approval from others to make a purchase. I once made the mistake of agreeing to pay for a relatively minor repair/replacement job on a "time and materials" basis without building in some economic safeguards and found myself on the hook for a bill close to three times the estimate because the guy on the spot bought materials at inflated prices and billed for "standing/waiting time labor" while the materials were delivered from a supplier at "rush rates." I was pragmatic enough to know that my time and expense of protesting the bill would have made any win a pyrrhic victory, but you can be sure that contractor NEVER got another job from me and I sure spread the word to others to avoid my lack of foresight.

It wouldn't take too many "out of control" purchasing events to crimp the company's profit or alienate customers (such as I) when "expenses" create nasty surprises. Job site supervisors need to be an important part of watching the company bottom line and ensuring no customer is alienated because the job takes longer or costs a lot more than the original estimate.
This is an "opportunity for education" as Deming prescribed in his theory of a System of Profound Knowledge (SoPK.)