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KNOWLEDGE LIBRARY

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27Jun

Warehouse Occupancy Percentage

Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...

02Jun

Efficient Procurement Inventory

Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...

02Jun

Inventory Carrying Rate

The inventory carrying rate (ICR) is the percent of the unit inventory value used to...

26Jun

Inventory Activity Profiling & Data Mining

Suppose you were sick and went to the doctor for a diagnosis and prescription.  When...

27Jun

Inventory Performance Measures

Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...

Purchase Order Cost (POC)

The purchase order cost (POC) is the cost of placing a purchase order from a vendor. The majority of those costs are related to sourcing, purchasing, and procurement salaries and benefits (italics) and include:
Purchase Order Planning
Purchase Order Entry Time
Purchase Order Processing Time
Purchase Order Inspection Time
Purchase Order Follow-up Time
Purchasing Management
Authorization
Tracking and Expediting
Inbound Transportation, Receiving and Inspection
Order Forms
Postage
Telecommunications
Office Space
Office Supplies
Purchase Order Entry Systems
Based on making these computations in many industries, in many geographies, over many years; the cost of placing a purchase order typically ranges between $100.00 and $500.00. The most expensive activities are labor related activities. Hence, automating purchase order planning and processing typically yields significant labor cost reductions and productivity improvements. In addition, blanket purchase orders; vendor managed inventories; joint, fixed cycle replenishments; supplier rationalization and integration; e-procurement; and on-premise supplier programs should be evaluated to optimize purchase order costs and their related lot sizes.
The most expensive items on the list are the labor related items. Hence, automating purchase order processing typically yields significant labor cost reductions and productivity improvements. An example purchase order cost computation from is included below.
Screenshot from LRI’s Logistics & Supply Chain Scoreboard™
Techniques for reducing purchase order costs include:
• Blanket Orders
• Consignment
• Vendor Managed Inventory
• E-Procurement
• Automated P/O Tracking via GPS, RF, RFID
• Automated Receiving and Putaway
• Advanced Shipment Notification (ASN)
• EDI/XML
• Electronic Funds Transfer (EFT)
• Outsourcing
• CPFR/IMS
• Rate Negotiation
• Bundles/Internet

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