Verbal Order on a Breakdown
You are the purchasing coordinator at a food processing plant. A critical conveyor motor fails at 06:40 and the main line stops. The maintenance manager estimates downtime costs £7,000 per hour. The approved supplier has the motor but cannot deliver before three days unless an express service is used. The maintenance manager telephones the supplier and orders the motor at £9,400 plus £650 express freight. The supplier delivers the next morning. No purchase order was raised because the buyer was off sick and no one else had been given delegated authority. The supplier invoices £10,050. Finance rejects the invoice because there is no PO and the emergency approval was not recorded. The supplier now says it will suspend credit terms. The emergency purchasing procedure allows a retrospective PO within two working days with manager approval above £5,000, but five days have passed. The plant manager is asking you to sort out the invoice quickly and keep the line running.
1. Explain which procurement and financial controls failed and why the emergency did not remove the need for a PO.
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Reasoning:
- The emergency was genuine: a stopped line at £7,000 per hour justifies fast action. But an emergency exception allows urgency; it does not remove the need for authority, evidence and a PO. The procedure required a retrospective PO within two working days with manager approval above £5,000. That did not happen.
- The control failures are: no delegated buyer cover, no recorded verbal order, no emergency approval at the time, no goods receipt matching the invoice, and no escalation when the two-day deadline passed.
- The maintenance manager had operational knowledge but may not have had delegated financial authority. The supplier should have received a written order confirmation, even if by email, quoting the emergency reference and approver.
- Finance is right to reject an unmatched invoice, but simply refusing to pay damages the supplier relationship and supply continuity. The answer is to regularise the transaction, not to bypass finance.
2. How should you resolve the unpaid invoice and the supplier's credit threat without weakening controls?
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Resolution:
- Confirm the motor was received, installed and is fit for purpose; obtain the goods receipt note, delivery note, maintenance report and supplier invoice.
- Ask the plant manager, who has budget authority, to approve a retrospective PO for £10,050 with a written explanation of the emergency and the delay. Attach the evidence.
- Ask finance to match the invoice to the retrospective PO and receipt, and to release payment on the next run. Confirm the payment date to the supplier in writing and acknowledge the delay.
- Tell the supplier that credit terms should not be suspended because the invoice is being processed; avoid promising payment outside your authority. If the supplier demands immediate payment, escalate to the plant manager and finance.
- Record the breach in the procurement log and use it to review the emergency procedure. Disciplining the maintenance manager is not the first step; the system failed to provide cover.
3. Recommend three changes to prevent recurrence.
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Preventive changes:
- Create an emergency purchase procedure with a named deputy buyer, a 24-hour cover rota and a pre-approved list of critical spares suppliers. Include a one-page emergency PO form and a telephone authorisation log.
- Give site managers delegated authority up to a defined limit, with a requirement to confirm by email within one hour and raise a retrospective PO within one working day. Above the limit, a director must approve before dispatch.
- Add critical spares to a stocked inventory or supplier-held consignment arrangement, and review lead times and failure history. The cheapest prevention may be holding the motor, not negotiating a discount.
- Train maintenance and finance staff on the procedure and audit emergency purchases monthly. Measure the number of retrospective POs, time to approval and invoice exceptions.