In our last issue, we suggested you perform an in-depth discovery to identify and document what vendor shipments are causing extra time to process in receiving. In addition to identifying these time wasters and their frequency by vendor, you were tasked to translate the extra time to correct these occurrences, such as incorrect quantities or mixed items in a carton, into dollars by multiplying the hours expended times an hourly rate. Individuals who have performed this exercise over a period of time say a month were amazed at how much money they were wasting fixing these vendor errors.

 

I hope that you have performed this exercise in your operation because this documentation is your strongest weapon you can use to change this profit drain into a profit gain. Armed with this new information, let us discuss how you can use it to improve your operation.

 

In order to change this situation, you will need to partner with other departments in your company, such as purchasing and possibly finance or senior management to help reduce this profit drain. It is vital that you have senior managements support. Without it, it will be more difficult to improve the situation.

 

Start small by taking baby steps. Select the vendor who is the worst offender. Schedule a meeting with purchasing to share the information you collected to educate them as to what the vendor is doing to the company. Bring your data sheets detailing what happened, the amount of extra time it took to correct these issues and how much it costs in dollars. It is your job to educate them as to what is happening; they will not know unless you tell them what the vendor is doing, the action you are taking to correct the non-conformance and how much extra money it is costing. You may have shared anecdotal incidents one at a time in the past, but nothing speaks louder than the facts collected over a period of time. Speaking the language of dollars should get their attention.

 

In many cases, vendors do not make corrections because companies fail to provide them with what they are doing to you or they do not know it is bothering you. The next step is to communicate these shipping problems with your vendor and why and how they are unacceptable.

 

Partnering with Your Vendor for a Positive Change

I suggest you schedule a meeting with the vendor to share these issues and discuss corrective action measures. Remember, information is only valuable when it is shared. At the meeting with the vendor, your purchasing partner should:

  • Share the data you collected and non-conformance issues of its shipments.
  • Notify the vendor that you will be inspecting the shipments.
  • Ask and discuss how the vendor will correct this situation.
  • Mention that failure to correct these situations may result in chargebacks in the future.
  • Establish a time schedule to review the situation.

Who Should Perform the Vendor Inbound Inspection?

Depending on the size of your operation and the amount of information you collect in your program, the vendor inbound inspection can be performed either in receiving or in a separate area with separate workers. Each scenario has pros and cons. Some companies may want to perform this in receiving with receiving personnel, while others may want to establish a separate department. In either case, I recommend selecting one person to be in charge of this program and this person to report to the warehouse manager. As your program expands, he or she can train other associates to assist them.

 

With this new data, now is the time to review your vendor information and routing guide. These are the guidelines you should provide to every vendor explaining how you want products shipped to you. Listed below are the important components, at a minimum, that your vendor information and routing guide should include:

  • Routing instructions, which should include carriers to use, freight terms, addresses and phone numbers.
  • Carton marking and labeling instructions, which should include how, what and where to put the label on a carton and any other information that should be included, such as Purchase Order number; ship from and to address; if multiple cartons, 1 of 3, 2 of 3, etc.; item description and quantity, at a minimum. Be sure to include a sample label and carton markings, such as marking fragile for a product when required. Also, include additional instructions, such as only one purchase order per carton, maximum carton weight, minimum carton strength and taping and sealing instructions.
  • Packing slip requirements and where it should be placed.
  • Product labeling requirements.
  • Product packaging, which could specify the bagging requirements for apparel or the dunnage or protection to be used to ensure minimal damage.
  • Acceptable quality. In this section, explain how you will inspect the inbound shipment and what is acceptable quality.
  • Non-conformance issues. In this section, list all the qualities that you will be inspecting.
  • Chargebacks for non-conformance. In this section, list the chargebacks for non-conformance, such as sending a shipment without a purchase order, which would result in a $50 chargeback.
  • Vendor report cards summarize the performance of a vendor over a period of time. Provide a sample for the vendor and explain how often they will receive one.

Creating these guidelines should be a group effort. Be sure to work with purchasing, finance and the president or the general manager to develop your vendor guidelines.

 

Expanding the Program

Take care and time establishing your system for documenting the findings of your incoming inspections. Extra time planning your data collection will pay big dividends in the future. Presenting factual data to a decision maker, rather than anecdotal data, gains credibility. Therefore, I suggest you create an inspection sheet, using one for each shipment inspected, sending a copy to purchasing, filing it by vendor in receiving and summarize it on the report card. This may seem like a lot of work, but I assure you it will pay off. In the future, you can use spreadsheets to automate the process.

 

As a warehouse manager, you have the power to reduce your costs and improve the profits of your company; the power of information. You have the ability to collect and report what your vendors are doing. The choice is yours. You can either control your destiny or be a victim. Unfortunately, the majority of the companies I visit have failed to use this power and continue to suffer and lose money. This will take work, but large profit improvements are possible with minimal capital investment.

 

Part three of our series will discuss additional ways to enhance your program and improve receiving, so stay tuned. Remember, this program will not be successful without the support of top management. With its support, however, best-of-class companies have realized huge savings from these programs you can too.

 

Wayne Teres is President of Teres Consulting Inc., a consulting firm he established in 1983. Visit him on the web at www.teresconsulting.com.
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