Procurement is one of those dark horses in the consumer products manufacturing world. Retailers have to buy stuff from their suppliers (the manufacturer) – there's no getting around it. And if the current system isn't broken, manufacturers shouldn't mess with it. Or should they?
This is where the line between retailers and manufacturers, in the procurement area at least, is starting to blur. As discussed in the recent Perspective: Consumer Goods Collaboration and the Changing Face of Retail Procurement Organizations (IDC Manufacturing Insights, #MI232619, January 2012), retailers are becoming more demanding of their supplier (the manufacturer) community – causing manufacturers to look at their existing procurement practices and determine what can be improved. This includes quality, service, and cost.
We've talked a lot here at IDC about the four forces – big data, cloud, mobility, and social business – and how this is affecting the supply chain. Procurement is an integral piece of making sure the supply chain operates smoothly and procurement vendors are beginning to take advantage of these emerging technology trends as well. Ariba, a procurement provider, has recently announced its Ariba Network – which combines these technologies to create a partner community for services like e-procurement and e-invoicing, all in the cloud. Likewise, IBM purchased Emptoris at the end of 2011 to help give it a competitive advantage in the procurement arena through the use of both the analytics and cloud capabilities that Emptoris brings to the table. There are many other vendors – JDA, Oracle, SAP, and others – all offering procurement applications as a way for manufacturers to better service and collaborate with retailers.
In combination with improvements in procurement software due to emerging technologies manufacturers and retailers are also understanding the importance of profitable proximity sourcing – meaning companies should choose their supply networks based on a combinations of three factors: cost, lead-time, and the location of demand. In a recent IDC Manufacturing Insights survey 22% of manufacturing respondents stated retailers are moving their business closer to emerging regions or new markets. Although these numbers are still somewhat low we do think location of demand will determine how retailers source – similar to the manufacturing industry.
These factors – increased collaboration between manufacturers and retailers, the four forces, and the concept of profitable proximity – are changing the landscape of procurement in manufacturing, and how manufacturers approach their procurement strategy. The underlying cause of all of this of course, is the consumer. Retailers and manufacturers must work together to improve procurement to meet the requirements of a consumer who now has ubiquitous access, and visibility, to the marketplace, demands personalization of products, and has a much more active influence on the products and services provided to them.
As we examine the world of procurement more closely in an upcoming report we look forward to your feedback in this area. Do you think there is room for change in the procurement arena, and if so – in what way? Please be sure to visit our blog community and leave your opinion.