Earlier in the year I wrote about how consumer goods manufacturers are changing the way they think about procurement. And it turns out many are actually changing not only how they think about it, but also how they manage and consume the software used to run procurement – often no longer on-premise, but in the cloud.
Manufacturers buy, or procure, either direct or indirect goods in order to create a finished product to ship to their customers. Direct items are those materials that actually go into the product, or the product packaging; indirect items are those things that support the completion of the product (i.e. office materials, peripheral maintenance, repair, etc.). In the 'good old days' this procurement process was done in the analog world - through face-to-face meetings or via telephone calls - with, typically, the manufacturers aim to get these products at the lowest possible cost in order to produce a product that met the customer's needs in terms of quality, quantity, and sometimes location.
Some things have clearly changed, other have not:
- Procurement has remained a critical element of the supply chain, particularly for those companies who are cost-centric, for whom operational excellence is a first principle.
- While the ability to extract every last drop of cost from the procurement process remains a 'badge of honor' for the procurement professional; the notion of 'sustainable supply' (ensuring availability in the supply chain - not sustainable in terms of 'being green') has gained traction over the last decade. Pressuring a supplier to the point where they can no longer make an adequate profit - particularly those suppliers who provide either a significant volume or a unique item - is not a good way to ensure reliability of supply.
- Environmental sustainability in terms of procurement and the supply chain however is also making strides with many RFIs being returned asking for 'green' requirements
- The title of Chief Procurement Officer is no longer unique and procurement has proven itself to be a key business process throughout the supply chain - with many C-level offices taking note.
- e-Procurement has emerged as a way to drive both process efficiency as well as supplier transparency.
Has Electronic Procurement Become the New Norm?
The use of e-procurement is not a new concept but it is taking a different form as we advance into 2012. As discussed in this year's earlier blog this is partly due to the four forces - cloud, mobility, social business, and big data - and manufacturer's ability to take advantage of these emerging technologies.
The culmination and advances of these four technologies are making it easier for companies to realize the benefits that applications like e-procurement bring including:
- Increased visibility across the supply chain, both within 'my own four walls', but more importantly across the extended supply chain.
- Improved relationships with suppliers and buyers for both quality of goods procured and for cost.
- Greater ability to 'segment' suppliers - differentiating between those who require a strategic engagement versus those who require a tactical one.
- The use of profitable proximity sourcing to find the best products in the location that makes the most sense - particularly as the supply chain continues to expand globally.
Procurement might be one of those supply chain processes where you think, "if it ain't broke, don't fix it." But with the convergence of the four forces and companies looking for ways to both cut costs and keep up with the ever increasing speed of business, "fixing" procurement is a step in the right direction.
It is an application that lends itself naturally to the cloud due to the fact that many constituents need to work together via a platform to determine contracts, pricing, and supplier availability. The data being shared via the cloud, amongst partners and suppliers, and through mobile devices often isn't as sensitive as corporate intellectual property (IP) or financial information so security is still a concern - but less so.
And lastly, moving procurement to e-procurement lowers the barrier of entry for smaller suppliers allowing the manufacturer to find the best pricing and in the long run save money while doing business more efficiently.
The full report on e-procurement will be published later this month authored by myself and Simon Ellis, practice director for supply chain strategies, and we look forward to hearing your feedback on this timely topic. Further, IDC Manufacturing Insights is in the process of evaluating data from our supply chain survey where additional procurement insights will be revealed.