These days, manufacturers are purchasing more and more goods from global suppliers. As a result, manufacturers have to become more sophisticated in their analysis, more accurate in their demand forecasting, and more knowledgeable about the global marketplace and the changes it is undergoing. To this effect, a recent Industry Week article titled Sources of Strength attempted to outline the next generation sourcing strategy that manufacturers need to use to remain competitive.
According to the article, the first thing a manufacturer needs to do is insure that it’s processes are appropriate, that it’s goals are aligned with organizational needs, and that it’s people have the necessary skill sets.
The next thing it needs to do, as per the article, is select an e-Sourcing suite. This is not the first step because technology by itself doesn’t do anything unless you understand how to use it and how to organize and take advantage of the data it acts on. What technology does is simplify the process of sustaining benefits because it automates the process and captures decisions and data for future use.
Then, once an organization has streamlined and simplified its sourcing processes, the article indicates that it has to start collaborating with its suppliers. This is because a good relationship provides a manufacturer the opportunity to create flexibility with its suppliers and creates a means to reduce costs at each stage of the supply chain. According to Bob Derocher of Archstone Consulting, this requires selecting providers that will sit down with you and work together on continual process improvement to reduce the total cost of each purchase.
According to Bob, one of the things you see being done between manufacturers and some of their major supply partners is a focus on supply relationship management, creating a collaboration … that way, manufacturers don’t have to just demand a lower price from the supplier. If they can reduce the friction between the two companies and the effort it takes to do business together, the supplier can keep a good margin and give you a good price. Then they’re both better off, which is important because in many ways, their fates are tied together.
Furthermore, as noted by Sanjay Argawal at Deloitte Consulting, when collaboration is done right it addresses one of the biggest challenges companies have today — not having very much visibility beyond their Tier One supply base. When you form a strategic partnership with your supplier, you also get visibility into the supply chain beyond that supplier. And the more visibility you have in the supply chain, the more influence and control you’re able to have to prepare for supply disruptions“. Also, as noted by Bob, the specifications process is not just about the engineering aspects of the components, it’s also about the business relationship between the buyer and the supplier. How will the supplier deliver the product? When do you take financial ownership? How will the supplier know when to ship another batch? If you have a collaborative planning and forecasting process with the supplier, you’ll know all of that up front“.
So, re-engineer and align your processes, obtain a good e-Sourcing suite, collaborate, increase your visibility, look at the total cost – including logistics, and be lean. That’s a pretty good start. Throw in a pinch of six sigma, a pound of scrap and waste management, better energy utilization, and some smart price forecasting to insure that the contract term chosen is the right one, and a manufacturer would be ready to enter the twenty-first century in their sourcing operations.