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Understanding the Additional Indirect Costs of Add-On Orders

Understanding the Additional Indirect Costs of Add-On Orders

Add-on orders may not seem like anything that would affect the acquisition process, but when you consider all the implications, you will see just how much of an impact they can have. In every stage of the Perfect Order process, there is the potential for a glitch. And just like a cog in a well-oiled machine, it can completely break down the system at any level.

GNFR Perfect Order

The ultimate goal of any company is to create the Perfect Order in GNFR purchasing. This creates the ideal situation for every party involved because it ensures the company has the ability to receive everything they ordered exactly on time. It ensures the supplier is able to work the most efficiently without having to revisit the order. And it gives the seller the maximum profit and reliability in their delivery.

On the opposite end of this scenario is when an unexpected issue arises with an order. For example, if an order arrives on time but without one component for a contractor, it could delay construction, costing everyone involved added money and added time. Not to mention the fact that there is now an add-on order that needs to be submitted to make up for that missed component.

When Are Add-On Orders Needed?

If the Perfect Order achieves Perfect Delivery, there should never be a need for an add-on order. However, there are two particular types of issues that make them necessary. For example:

1.   Perfect Order Issues

  • Wrong goods ordered
  • Incorrect quantities ordered
  • Incorrect delivery scheduled
  • Ordered too soon
  • Ordered too late
  • Goods not ordered

2.   Perfect Delivery Issues

  • Damaged by carrier
  • Damaged at end destination
  • Insufficient inventory
  • Supplier fulfillment issues
  • Poor delivery performance by the supplier/3PL or a replenishment error

What Is the Impact of Add-On Orders?

The impact of add-on orders can be small or large, but it usually trickles down to all involved parties, causing added expenses and other problems. Possibly the most significant problem is the additional cost. GNFR add-on orders affect the original budget, which can greatly affect their bottom line. It also adds unplanned shipping charges. Not to mention that these items usually need to be shipped LTL (less than truckload), parcel or overnight, which can be quite costly.

This can be a very significant loss for some major suppliers. There will also be added time in assessing exactly what is needed in the order and the wasted time that was spent in ordering something that was not needed. Add-on orders also have huge impacts on the overall projects, leading to project delays and missed deadlines, and can even cost some companies the business and loyalty they strived to attain in the first place.

Missed deadlines cost every participant something in the end. Having to reorder goods means that a company may not open a new or remodeled location at the scheduled time. This causes a loss of revenue for the opening venue.

Excess ordering is the third crucial impact of add-on orders. Reordering inventory after goods are found to be in transit or actually already on-site can lead to excess inventory. This inventory then has to be scrapped, lost, returned to supplier, sold, or will cost more to be used elsewhere. And at this point, time and effort must be expended to determine what needs to be handled and, in some cases, scrapped or lost.

How to Reduce the Number of Add-On Orders

In order to reduce the revenue loss and other issues that add-on orders cause, it’s important to reevaluate your processes. Start with the Perfect Order. Are there glitches in this system that need to be addressed? Could you benefit from a member of management overseeing the process of putting the order together? Or, does there need to be specific checklists or other measures taken to ensure nothing is missing?

Next, delve into your delivery system. It’s important to ensure the Perfect Delivery, meaning that every item is delivered exactly where it needs to go, exactly when it needs to get there. This could mean examining your shipping process or choosing specific 3PLs or carriers, depending on the type of product, and the most efficient means to move the goods from point A to point B.

Lastly, make sure that you have complete real-time OTIF supply chain visibility. This means that anyone involved in this process is able to know exactly where the goods are at any given time.  If problems are found, the right people can take action immediately to correct the problem early to maintain the Perfect Delivery Thus, they are able to give, receive, and take action with real-time information, as well as eliminate the surprises that cause costly problems.

Conclusion

Add-on costs can lead to unnecessary additional indirect costs for buyers as well as suppliers. These costs can affect profitability in a huge way. And although add-on orders are sometimes unavoidable, it’s important to take steps to achieve the Perfect Order and Perfect Delivery using real-time OTIF supply chain visibility to ensure the goods are handled in the most efficient way possible to increase the bottom line.

 


About Lumatrak

Lumatrak provides a full range of real-time OTIF visibility tools to help you better manage supplier and delivery performance from order to the final mile of your indirect goods supply chain. Provided in the cloud through its Software-as-a-Service (SaaS) offering and already connected to vast number 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.

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