This is the 5th post in the series: How Much Does it Cost to Process an Order?
1st post: how-much-does-it-cost-to-process-an-order.html
2nd post: how-much-does-it-cost-to-process-a-purchase-order-internally.html
3rd post: calculating-the-cost-to-process-a-po-externally.html
4th post: calculating-the-cost-to-expedite-an-order.html
I was tasked with analyzing the average costs of processing an order through its various stages from Purchase Order (PO) creation through to invoice closure.
I decided that my starting point would be the concept: time is money. I had to figure out:
What is involved in receiving an order?
I could find very few formal procurement studies relating to the receipt of items. What I did find in abundance were receiving processes for various public institutions, each of them involving a minimum of three different individuals or departments:
I suppose the Recipient and the Document Matcher could be one and the same, depending on purchasing processes and receiving policies. For the purposes of this post I’ll consider it as three separate sets of tasks regardless of the performer.
Reading through various receiving policies and procedures, there’s a fairly consistent (and I suppose fairly obvious) list of tasks performed by the receiver of a shipment:
Best case: If the boxes are in good condition, the paperwork matches, and there are no carrier fees to sort out, the process would take between 5 and 15 minutes.
Worst case: If a couple boxes are damaged, the waybill says 6 boxes but only 5 come in, and the carrier requires extra fees high enough to warrant obtaining purchasing approval or contract checks, the process would likely take anywhere between 15 minutes and an hour, possibly longer.
All things considered, a fair average duration for this process is probably 20 minutes.
The Recipient’s tasks typically include:
Best case: If the boxes match the documents, contents match the documents and are in good condition, and there’s not a lot of distance between the pick up point and the destination, the process would probably take between 15 and 20 minutes.
Worst case: If a box somehow goes missing between the time the Receiver processes paperwork and the Recipient picks them up, the contents of the boxes don’t match the packing slips, some of the items received are damaged, and there’s no PO, the process would take… Tylenol for the headache, plus probably 30 minutes (if I’m being kind and optimistic) to 1.5 hours or more. And don’t forget the time it takes to transport the boxes to their intended destination, if that part of the process is performed before the contents are checked.
A fair average duration here is probably 40 minutes.
This part of the process would be the least time-consuming in terms of direct work action, but it would likely be the longest part of the process in general because of having to wait for all order-related documents to come in.
I’m most interested in direct work activity here, so tasks required:
Best case: If all documents arrive in a timely manner, all documentation is accurate, and document matching can be completed without a problem this process might take 10 minutes – longer for larger orders.
Worst case: If documents arrive late, non-matching documents somehow got past the Receiver and Recipient, and no PO exists this process could take 15 minutes or longer, depending on the size of the order and the nature of the problems with the documentation.
I’ll say a fair average here is 15 minutes.
Total time and cost to receive an order
Based on my estimates, total time to receive per task is:
For a grand total of 75 minutes.
Staffing cost per hour: $27.78 (Determined in post 2 of this series)
1.25 * $27.78 = $34.73
A few notes
I do want to mention a few things I found while researching this post.
I didn’t find much in the way of receiving metrics or data, but I did find a benchmarking study by WERC done in 2014 that provided the following:
I also found a study by StellaService from 2013 that focuses more on retail shipments, and notes the following rates of damaged orders with major carriers:
The WERC study indicates that error or damage are quite uncommon while StellaService’s numbers indicate that damage may be more of a concern, but then I’m comparing corporate shipping to residential, so I really can’t make any conclusions here. Since I wasn’t able to find a lot of data relating to the time or cost associated with receiving activities, I did a lot of guessing, figuring, and estimating in this post.
I take into account that it’s likely that most shipments are received relatively trouble-free, so the time associated with each of the three receiving process steps is probably closer to the best case scenario most of the time.
But it seems to me that in the event that something does go wrong in receiving, there’s a lot of paper shuffling, notifying, cross-referencing and discussing to be done; this tells me that whenever there is a problem the resolution is time-consuming. This is why my estimates for each of the three receiving tasks discussed here is a little higher than the best case scenario
And finally, I should note that additional steps have to be applied to receiving certain classifications of item – for instance, when receiving electrical equipment, the Receiver should check that the voltage noted on the carton matches the supply at the destination facility.
Certainly there are countless process tweaks that may be required depending on the nature of the receiving organization, the manufacturing organization, the goods being received, regulatory bodies in force, additional paperwork requirements, etc. It’s safe to say that my estimates are based on a rather simplistic snapshot of the receiving process.