Understanding How On-Time Delivery Delays Increase Project Budget Risks
There are many intricacies involved in the execution of a project to ensure that the project is completed on time and within budget. Receiving everything On-Time, which requires coordination from all parties in the supply chain from the manufacturer to the buyer is one of the biggest execution pieces of any project.
What Is On-Time Delivery?
The definition of On-Time Delivery is exactly as it sounds—getting what is ordered on time. Receiving everything ordered correctly is critical to your team’s ability to complete projects on time and on budget. The On-Time Delivery KPI measures the end goal of all procurement professionals, which is to receive everything ordered exactly when it’s needed.
Ensuring all material is shipped on time and in full is a key component to ensure projects are completed on budget. Achieving On-Time Delivery means that the material arrives just-in-time to keep the project on schedule and within the budget.
What Impact Do On-Time Delivery Delays Have on Budgets?
All parties involved in the project—including but not limited to the procurement buyer, supplier, 3PLs and contractors—must handle their ordering and fulfillment processes effectively in order for deadlines to be met. Any glitch in the process could cause a chain reaction that results in a negative impact on the project timing. Missed deadlines result in a multitude of additional costs. Rescheduling the contractor, searching for late inventory, and repurchasing late inventory thought to be or actually lost all cause significant delays that could lead to the project greatly exceeding its budget.
Hitting the budget on a project is extremely important, as it can have a direct impact upon the bottom line. Project budgets have an arguably larger impact on the bottom line than revenue. Receiving everything on time is a leading factor to keeping from busting the budget.
Below are a few examples of how On-Time Delivery Delays affects the budget:
- Increased Add-on order costs
Add-on orders can be the result of not receiving orders on time. Late orders without On-Time Delivery visibility will cause those involved to either look for these missing pieces or simply reorder them as an add-on order (or both). This cycle causes problems for the suppliers; a late add-on order could cause late delivery, which further complicates the timing of the project.
Aside from all of the issues surrounding the creation of add-on orders, there are also many additional related expenses. Any delays further increase the many associated costs, including those charged from contractors. Other additional expenses could include those related but not limited to costs from processing, invoicing, accounts receivable, receiving, and many more.
- Increased Shipping costs
In addition to the cost of the product itself, extra shipping costs for add-on orders increase project costs dramatically. Many of these add-on orders are part of the critical path construction process. These parts are integral to the overall project’s completion, so shipments of these parts may need to be expedited. None of the add-on shipments would have been factored into the original budget, and expedited shipping in particular is exceedingly costly.
- Avoidable Excess inventory disposition costs
A mistaken and unnecessary add-on order would need to be disposed of in some way. The associated extra disposition costs will further push the project over budget. In some cases, the reason for placing additional add-on orders is for items thought to be lost. When field managers cannot find certain purchased goods, they’ll request for them to be reordered. This leads to many items being ordered twice, but once those lost items are found, they will need to be disposed.
Receiving orders on time can greatly help projects be completed on time and stay within budget. Any mistake causing delivery delays requires additional spend to obtain the parts needed for a project.
To help cut down on additional costs, procurement professionals must look for methods to increase their supplier’s On-Time Delivery performance percentage. Obtaining real-time order fulfillment visibility is the key method to help procurement professionals hold their supplier base accountable to meet their On-Time Delivery goals.
With End-to-End On-Time Delivery visibility, procurement teams can identify issues before it’s too late to receive everything on time, in full, and, most importantly, within budget.
Lumatrak provides a full range of real-time On-Time Delivery visibility tools to help better manage supplier and delivery performance from order to the final mile of your indirect goods. Provided in the cloud through its Software-as-a-Service (SaaS) offering and already connected to vast numbers of manufacturers and contractors, Lumatrak’s solution can be quickly implemented to complement and enhance any ERP, Strategic Sourcing and Procure-to-Pay systems.
To learn more about how a better GNFR-delivery management solution could save your company both time and money, contact the team at Lumatrak today.