Procurement and supplier management

Cue 1 The six step cycle with the question each step answers appearing beside it

AMARA 00:00 Procure to pay. Most people can draw the diagram. What do they miss?

NADIA 00:05 Why each box is there. A step whose purpose has been forgotten turns into a delay, and people route around delays. If nobody can say what the goods receipt is protecting, somebody will start receipting from the delivery note to save two minutes.

AMARA 00:22 Take the three way match then. What does it protect?

NADIA 00:26 It stops you paying for things you did not order, did not receive, or were charged the wrong price for. Three documents created independently: the order, the receipt, the invoice. Pay only where all three agree.

AMARA 00:40 And each mismatch means something different.

NADIA 00:43 It does, and the diagnosis is usually instant. Quantity mismatch between receipt and invoice is a short delivery, an over delivery, or a receipt entered from paperwork. Price mismatch against the order is an uplift nobody agreed or an old price list. An invoice with no order at all is not a data problem, it is somebody buying outside the process.

Cue 2 Three documents converging, with each mismatch type highlighted in turn

AMARA 01:07 Tolerances. Everybody sets them.

NADIA 01:09 Set them small, deliberately, and write them down. A tolerance wide enough to swallow a real error has stopped being a control and become a way of not noticing. If yours absorbs five per cent on price, you have agreed in advance not to see a five per cent increase.

AMARA 01:29 What can the match not do?

NADIA 01:31 It cannot tell you the purchase should have happened. It proves the transaction went as agreed. If the person who agreed it also received it and released the payment, everything matches perfectly and none of it was real.

AMARA 01:46 Which brings us to segregation of duties.

NADIA 01:49 Ordering, receiving and paying in three different pairs of hands. The two oldest frauds in the subject both require one person to hold the whole chain: an invoice for goods that never existed, and a genuine invoice paid into an account somebody quietly changed.

Cue 3 A single person holding all three roles, then the roles separating

AMARA 02:07 The second one is everywhere now.

NADIA 02:09 It is the most common loss in small manufacturers, and the control is almost embarrassingly simple. A bank detail change is verified by telephone, on a number you already hold, never on a number in the email asking for the change. That single rule prevents most of it.

AMARA 02:28 A firm with four people in the office cannot separate three roles.

NADIA 02:33 No, and writing a policy that pretends otherwise produces a document nobody follows, which is worse than admitting the gap. You use compensating controls. A second person reviews the payment run against receipts. Someone who does not buy reviews new suppliers every quarter. Write down what you actually do.

AMARA 02:53 You called goods receipting the most underrated step.

NADIA 02:56 It looks clerical and it decides your inventory accuracy. The moment you receipt, the organisation asserts that a quantity of something exists in a specific place, and every planning decision afterwards rests on that assertion.

Cue 4 A delivery being counted against a note, and the stock record diverging over time

AMARA 03:10 And receipting from the note?

NADIA 03:12 Is faster, matches the paperwork beautifully, and is how the record and the shelf start to drift apart. Then planning orders against a quantity that does not exist, and one morning the line stops for a material the system says you are holding.

AMARA 03:29 Damage as well?

NADIA 03:30 Same moment, and this one has a hard edge. A pallet signed for without inspection and found damaged three weeks later is a claim the carrier will refuse, entirely reasonably, because your signature says it arrived in good condition.

AMARA 03:46 Payment terms. Sixty days is normal in manufacturing.

NADIA 03:49 Normal, and worth naming for what it is. Sixty day terms mean the supplier is financing your working capital for two months. That is a legitimate negotiation. What is not legitimate is agreeing thirty and paying at sixty, which is renegotiating the contract through the payment run.

Cue 5 A payment timeline showing the agreed date, the statutory trigger and interest accruing

AMARA 04:08 What does UK law actually give the supplier?

NADIA 04:11 Under the Late Payment of Commercial Debts Act, once the agreed date has passed they may charge statutory interest at eight per cent above the Bank of England base rate, plus a fixed sum towards recovery costs, plus reasonable additional costs where the fixed sum does not cover them.

AMARA 04:31 And where no terms were agreed at all?

NADIA 04:34 Thirty days from receipt of the goods or the invoice, whichever is later. That default surprises people who assume no agreement means no obligation.

AMARA 04:43 Do suppliers actually invoke it?

NADIA 04:45 Rarely, because they want the next order, and that asymmetry is exactly why large buyers stretch terms. What has changed is that large UK businesses must report their payment performance publicly. The stretching is now a matter of public record, and it is read by the suppliers deciding whose order to ship first when things are tight.

AMARA 05:08 Is there a case for paying early?

NADIA 05:11 Only where the discount justifies it, and that is arithmetic rather than goodwill. Two per cent for paying twenty days early is an outstanding annualised return and worth taking. Paying early for no discount is giving away cash for a thank you.

Cue 1 A supply base plotted on spend against risk, resolving into four quadrants

AMARA 05:28 Two hundred suppliers. Where does a buyer start?

NADIA 05:31 Not with the biggest. Segment on two axes: how much you spend, and how exposed you are if the supply stops. The second is the one people consistently underestimate.

AMARA 05:43 Why underestimated?

NADIA 05:44 Because attention follows money. A component costing eleven pence stops a line exactly as completely as one costing eleven thousand pounds, and nobody is watching the eleven pence one. That quadrant, low spend and high risk, is where plants actually get hurt.

AMARA 06:00 Give me the four segments and what you do in each.

NADIA 06:05 High spend and high risk is strategic: partnership, shared forecasts, senior attention. High spend and low risk is leverage: tender it, negotiate hard, keep alternatives warm. Low spend and high risk is bottleneck: dual source, buffer, or design the dependency out. Low spend and low risk is routine: automate it and stop spending management time on it.

Cue 2 A material list collapsing to show every item with only one approved supplier

AMARA 06:28 Single points of failure. How do you find them?

NADIA 06:31 Mechanically, and almost nobody does it. List every material. Count approved suppliers per material. Look at every count of one. It is an afternoon of work and it usually produces a surprise.

AMARA 06:44 Is one supplier always wrong?

NADIA 06:46 No, and the distinction matters. Sole source means only one supplier exists in the market, which you manage rather than fix. Single source means you chose one when others exist, and that is a legitimate strategy with real benefits in quality and price.

AMARA 07:03 And the third case?

NADIA 07:05 The one that has no name, because nobody chose it. The dependency accumulated over eleven years, the person who knew about it retired, and you find out on the morning the supplier does not answer the telephone. That is the only one of the three that is genuinely indefensible.

Cue 3 Two approved suppliers tracing back to a single sub tier producer

AMARA 07:24 You said concentration hides.

NADIA 07:26 Two approved suppliers who both buy from the same sub tier producer are one supplier with two names. Same for two suppliers in one region behind the same port. Your material list shows two. Reality shows one.

AMARA 07:41 How do you find that out?

NADIA 07:43 You ask. Where does your critical input come from. Good suppliers answer, and the answer is often uncomfortable for both of you, which is exactly why the conversation is worth having before it is urgent.

AMARA 07:57 Risk scoring. Does that need a data subscription?

NADIA 08:00 Almost none of it. Criticality is what stops if they stop. Quality history is your own rejection rate. Lead time you already know. Reliability is orders delivered complete and on time, which is a harder test than on time alone and a far better predictor.

Cue 4 A shipment moving along a route with cost and risk transferring at different points

AMARA 08:18 Why complete and on time rather than on time?

NADIA 08:22 Because a part shipment arriving on the right day passes an on time measure and still stops your line. If the measure can be satisfied by something that does not solve your problem, the measure is wrong.

AMARA 08:37 What warns you earliest?

NADIA 08:38 Behaviour, not numbers. Acknowledgements stop arriving. Part shipments from someone who never part shipped. A sudden request for payment in advance. Turnover at your account. Questions about your own payment history.

AMARA 08:51 How much warning does that give?

NADIA 08:53 Months, typically. A supplier in difficulty behaves differently long before it fails, and those months are the entire opportunity to qualify an alternative calmly. After the failure you are qualifying in a panic, which is where the quality problems come from.

Cue 5 A unit price growing into landed cost, then into total cost of ownership

AMARA 09:10 Incoterms. Give me the one thing people get wrong.

NADIA 09:13 That whoever pays the freight carries the risk. Cost and risk are separate questions, and under some terms they transfer at different moments. People discover this during a claim, which is the worst possible time to read the contract for the first time.

AMARA 09:30 Landed cost. Why is unit price not enough?

NADIA 09:34 Because it excludes most of what the material cost you. Price plus freight plus duty plus insurance and handling, over the quantity received. That is the number that makes two quotations comparable.

AMARA 09:46 Does it change decisions in practice?

NADIA 09:49 Regularly. A quote four per cent cheaper per unit with longer freight, higher duty and a minimum order quantity that leaves you holding six months of stock is more expensive landed, and buying on unit price makes that entirely invisible.

AMARA 10:05 And total cost of ownership goes further still.

NADIA 10:08 Further and less comfortably. Inspection at goods in for a supplier you do not trust. Scrap and rework their material causes downstream. Expediting. Buffer stock their variability forces you to hold, and the cash that stock ties up.

AMARA 10:23 Who pays for all that?

NADIA 10:25 Operations, while procurement reports a saving. That mismatch is the oldest argument in the building, and making it visible with actual numbers is the most valuable thing a small procurement function can do.