Procurement leaders have long faced ever-increasing complexities that include rising customer expectations, volatile markets, fluctuating raw material prices, digital technology advancements, geopolitical considerations and other challenges. However, I don’t think any of these leaders foresaw the business disruption the pandemic would wreak in 2020, and continue to wreak for many organizations into 2021.
While many companies were not adequately prepared for widespread disruption of this scale, some may not feel the full effects of the crisis upon their business quite yet, thanks to their supplier management strategies. Increasingly, these strategies take advantage of digital technology to ensure manufacturing organizations can rapidly respond to disruption and maximize supplier performance.
Digital transformation in the area of procurement has been crucial in enabling companies to address disruption. It delivers benefits that include reduced COGS, improved supplier selection, enhanced product quality and greater supplier collaboration.
Rapid change has caused so much complexity for procurement professionals as they make decisions aimed at creating stronger supplier relationships and work closely with IT to employ the appropriate digital technologies. The good news is that many manufacturers have already made strides in their digital efforts with suppliers without realizing it.
Taking sourcing and supplier management activities as an example, procurement teams have achieved certain levels of automation and improved data accuracy, but still struggle with comprehensive visibility due to a decentralized approach. Often, buyers and planners rely on manually-intensive processes to identify suppliers, select the right supplier and monitor supplier activity.
In a world where the success of a manufacturer’s business depends heavily on its ability to capture value from external suppliers, procurement teams must automate and digitize their inbound supply chain where possible. Investing in connected processes with suppliers delivers real-time information that helps users to better understand what is really happening across the supply base while also reducing inbound supply risks. This provides a faster time to knowledge and a rapid response to supply disruptions while controlling product costs, quality of products and supplier processes.
These are also some of the exact areas manufacturing ERP addresses – helping CPOs and procurement teams respond rapidly to supply issues, improving sourcing decisions, boosting supplier quality and leveraging technology to enhance integrated supplier activities.
The following are three areas to consider for procurement digital transformation, and where manufacturing ERP plays a role in forging stronger supplier relationships:
1. Eliminate manually-intensive sourcing.
By definition, manual sourcing processes are labor-intensive and time-consuming. We should probably also add out-dated to the list. Too many procurement professionals end up spending way too much time identifying and selecting preferred suppliers with manual processes that could be automated for greater efficiency.
It’s still common for manufacturers to manage sourcing activities with a mix of spreadsheets, emails, phone calls and buyers’ memories to track hundreds of supplier details. Resulting issues from this reliance on manual efforts include a lack of process governance and overlooked supplier insights. The missed opportunities for manufacturers include an inability to identify the best suppliers with the best overall price, accurately monitor supplier performance and enhance supplier development that could add business value.
By automating sourcing activities, manufacturers can efficiently and accurately select the lowest cost and optimal source of supply for the many raw materials, products and services they procure. Automation removes the guesswork and over-reliance on buyer memories to assess and compare costs, quality, capacity, services and other important factors associated with a variety of suppliers. This helps ensure a standard sourcing process results in the right contracts with the right suppliers.
2. Boost procurement analytics.
Historical spend analysis only provides a partial and past view of a manufacturer’s purchasing and supplier activity. It’s considered descriptive analytics and helps answer the question, “What has happened?” It’s a great “rearview mirror” as it allows procurement teams to learn from past spending patterns but does not provide an indication of what should happen moving forward.
CPOs need to ensure comprehensive and relevant data is added to the analytics mix to create meaningful and actionable information. Applying prescriptive analytics along with artificial intelligence allows procurement professionals to harness supplier data to recognize spend behavior patterns, forecast future budgets and anticipate supply requirements.
With the power of today’s analytics, buyers can identify patterns in invoices, purchase orders and supplier master data to standardize materials, change specifications or benchmark prices across preferred suppliers. Accordingly, procurement teams can make intelligent decisions about how to select suppliers, allocate future spend and mitigate inbound supply risks.
Often overlooked with regularity, procurement teams should take the time to fully evaluate their global supply base to determine if they can reduce supply risks and improve their relationships with suppliers. If the organization has previously moved operations offshore, now is the opportunity to evaluate re-shoring for potential cost savings and lower risk exposure. Efforts aimed at ensuring dual-sourcing and supply base diversification can also help when evaluating the entire supply structure.
So, how has your procurement organization been impacted by business disruption? How well prepared is your organization and supply base for future disruptions? Could your procurement team benefit from tighter integration with suppliers? How far along are your organization’s digital transformation efforts with suppliers?
Consider starting with modular supplier relationship management systems that allow you to adopt solutions as needed. Identify a specific challenge whether it focuses on supplier selection, supplier quality, supplier risk or another area. Tackle the issue and prove the solution prior to expanding to other areas. Now is the time to consider digital innovations for improving your sourcing and supplier management strategies today.
Brent Dawkins is QAD’s Director of Product Marketing.