Procurement: Journey of Customer order to Vendor Purchase Order

Procurement is the process of getting the  items from the vendors or suppliers to the inventory.   Based on the use case, there are two types of procurement strategies.

• Push based supply chain:  Predict the inventory(demand forecast)  and procure the items in step-1. When the customer orders ship it from the inventory.
• Pull based supply chain:  You will have pre agreement with suppliers on the products and list them on your website.  When the customer orders the item, procure it from the vendor. 

Both the methods have  pros and cons  and we will discuss them  in our future supply chain basics posts. Well, in this blog post we concentrate on Pull based supply chain/procurement. How to efficiently  procure the items when the customer orders and the item is not in the inventory. We explain it by simple examples of books procurement.

Supplier terms and conditions

The first step is talk to the supplier before listing the products.  Supplier gives you list of books he can provide you, then  list those books in your website.  Before that, you agree on few terms and conditions, this will be very essential when dealing with multiple suppliers who are ready to give the same product. We will discuss more about this on our next post supplier selection logic.Following are sample terms and conditions

•  Lets say the books cost - MRP is 100$. How much the supplier charges for the book?  Say 80$.
•  In case, you are not able to take sell the book,  what are charges for taking back the book?
• What if the book is damaged at the time of return?
• What if the book given by supplier is damaged?
• What is the SLA to get the book? (minimum of 3 days to give the book?)
• How many days, it will take to get the book to the mentioned city/warehouse?
• How many books he can supply once requested? (Example: He can give only 5 books)
• Cancellation SLA. Within how many days if you say cancel, then it is feasible to cancel the order.

Customer orders to purchase order 

Multiple customer orders to single vendor  purchase order 

Say ten customer ordered one book "Alchemist" and you don't have the book in the inventory. Fortunately you have one supplier, say name of the supplier is alpha, who can give you ten books. Then you club those ten books and make one vendor/supplier purchase order - PO, and raise against the supplier. Those ten customer orders are mapped to this one PO. This details are stored in some db - say table named - customer-order-to-purchase-order. This will be used in tracking the PO and customer order procurement status.

Multiple customer orders to Multiple vendor  purchase order

Say ten customer's ordered one book "Alchemist" and say you don't have the book in the inventory. You have two suppliers, alpha supplier who can give you 4 books and Beta supplier who can give you 6 books. Then you raise two purchase orders with two suppliers. One PO is for 4 books and another PO is for 6 books. You map these 10 customer orders with 2 POs. 

Cancellations 

If the customer cancels the item the same needs to propagate to the corresponding PO for request for the cancellation. Similarly if the vendor cancels the order you have to propagate the same to customer that you cannot fulfill the request (or try with another vendor, if the delay is acceptable to the customer)