Improved Supplier Performance:
The success of an organization depends on its suppliers and their ability to deliver quality raw materials/components on time. An organization has to monitor closely the activities of suppliers so that any problem can be detected and corrected at the earliest, and production progresses smoothly without any disruption. Organizations that operate globally have suppliers in several countries and managing and controlling the activities of these suppliers is complex.
ERP systems offer supplier management and procurement support systems that help organizations manage, control and coordinate the activities of suppliers. The ERP system provides all the information needed by management to negotiate for better quality, prices and delivery schedules.
Organizations need to establish partnerships with their suppliers and maintain good relations with them to obtain mutually beneficial results. The suppliers will be assured of demand for their products and the buying organization will be assured of the desired quality and prices. The procurement support systems offered by ERP packages enable organizations to establish networks with suppliers and carry out most of their activities such as requests for quotations, negotiation of contracts, release of purchase orders and online settlement of payments on product delivery. When supplier relations are managed in a traditional manner, representatives from various departments are selected and sent to the vendor for interaction. Whenever differences arise between the negotiators regarding the type/quantity of products procured, amount of discount, the methods employed for tracking the suppliers' activities, etc., the organization has to send people to the supplier to resolve the conflicts. Often the contracts take a lot of time to be implemented because they have to be typed and circulated among various managers who need to explain them to other employees. This results in a waste of time and effort. The procurement support systems help organizations speed up the process of negotiation and drawing up contracts, by facilitating online negotiations and electronic transfer of contract terms to the desktops of all the managers involved.
In organizations that procure several thousands of materials, there are several contracts with several suppliers with different dates when they become effective and expire, and quantity and price breaks (the quantity of product to be procured to avail of quantity discounts and the discount prices may differ from supplier to supplier). Managing them manually is a very difficult task. The ERP system simplifies the process of tracking contracts by providing instant access to the desired information and details.
Organizations, generally classify their suppliers into categories - certified, approved and probationary. Most critical components are procured from certified suppliers while less critical and strategic materials are procured from approved and probationary suppliers. ERP systems also offer the application of Total Quality Management to the procurement function. Organizations can use the tool to improve their supplier certification programs and enhance the quality standards for procurement. When a client places a purchasing order, the ERP system automatically selects the best supplier from the list of suppliers available in the system. However, in exceptional cases, the employee is free to choose a different supplier with the consent of the concerned manager.
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