Procurement strategies to improve efficiency across the supply chain

Procurement strategies to improve efficiency across the supply chain

The procurement function plays a vital role in strategic sourcing, ensuring that there is always the correct stock on hand while keeping the cost of raw materials as low as possible and reducing redundant stock to a minimum. With direct and indirect materials making up at least 50 percent of typical manufacturing costs, the procurement team also plays a pivotal role in ensuring that there is no business disruption. With the ongoing supply chain disruptions, this has made the role of procurement increasingly difficult.

According to the 2022 SYSPRO Global Research Survey titled ‘Realigning the links of the global supply chain’, 70 percent of businesses experienced material handling and supply chain disruptions over the last few years. Despite this, only 33 percent of businesses invested in procurement and sourcing technologies to reduce supply chain disruptions. Without the appropriate technology solutions in place, procurement teams have been unable to plan for and manage these disruptions.

While some instability will remain for the foreseeable future, here are a few strategies that you can leverage to improve processes and efficiencies across the supply chain:

1. Consider a dual-sourcing or alternative supplier strategy

Most manufacturers and distributors have had to contend with extremely low inventories of raw materials or lacked access to regular supplies due to a range of disruptions from bad weather to military conflict and even the ongoing pandemic. As a result, some businesses have stopped production altogether due to material shortages which has resulted in cascading effects across the supply chain.

Some have blamed just-in-time (JIT) methodology, however nothing in that methodology advocates keeping a bare minimum stockholding anywhere in the supply chain. Instead, JIT manufacturing recommends keeping a reserve of critical components and materials strategically placed along the supply chain to enable manufacturers to survive exactly this kind of supply chain disruption and continue manufacturing operations.

The problem can be partly attributed to outdated systems that have not allowed full visibility across the supply chain between the buyers and the sellers. According to the SYSPRO study, 50 percent of business chose to not invest in any new technologies at all and continued with their existing systems. With newer data-driven technologies in place, the procurement team would have the required visibility and be able to adjust outsourcing solutions to ensure that the business interruption is at a minimum.

Increased connectivity and visibility across the supply chain would also allow businesses to identify alternative sources of supply more easily.  A self-service Supply Chain Portal assists by extending the management of tenders online while introducing improved governance and tracking of documentation. In doing so, alternate suppliers can be brought onboard quickly as the document handling is streamlined and overall governance is improved.

2. Build standardized processes with ERP at the centre

Another challenge faced by procurement departments is dark purchasing – or the grey area where items are purchased outside of standardized processes and, as a result, a business is unable to manage the flow of goods or track expenditure. Dependency on manual systems is another key factor behind dark purchasing but this can be addressed with some standardization across the business with the help of an ERP platform, that comprises of:

1. A requisition system which can be used for procuring goods with no contractual obligations, but still provides the necessary control and visibility to manage expenditure. This will require pre-approved suppliers that can deliver on short notice.
2. An accounts payable (AP) system that is tied to a workflow process and can automatically route purchase requests to relevant approvers. An additional capability to consider is the use of artificial intelligence (AI) in the AP process to detect anomalies and potential fraud.
3. Purchase order functionality that can help, where a purchase request is routed through various managers with associated authority levels until the final stage when the request is converted into a purchase order.
4. Integrated purchase and requisition process with material requirements planning that allows procurement team to enforce the use of approved suppliers in the purchasing process and maintain predetermined sourcing policies.

Management of the procurement budget and the wasting of money on dark purchasing is becoming more and more of a governance issue to stakeholders. An ERP system can produce standard reports and flag anomalies to the executive team. It provides the necessary controls and traceability to set limits and prevent overspending or fraudulent transactions. Requisitions are automatically routed through the relevant managers while workflow alerts should prevent bottlenecks in the procurement process.

3. Leverage actionable insights for improved customer service

Creating an environment of improved visibility across the entire supply chain requires data and actionable insights. According to the SYSPRO survey, almost half of business invested in Internet of Things (IoT) to improve the collection of data along the supply chain.  The problem with this approach was that only 20 percent of business invested in data analytics tools and only 5 percent in AI and ML for real-time interpretation of the extra data that was being collected. This could lead to a serious “insights deficit” if not addressed. There would be too much data available which would delay decisions while there would be no tools to identify the correlation between data points for the requisite insights.

ERP systems already hold a vast amount of real-time data which can be fed into Machine Learning and Artificial Intelligence tools to predict potential disruptions and allow for the mitigation of risks faced by the procurement team. Data from third-party tracking tools can also be integrated back into the manufacturer’s ERP system. These combined data sources would expand visualization of the supply chain and, together with embedded analytics, help teams also understand trends and forecasts. As a result, these advanced insights would help to improve customer service, reduce costs, help with regulatory directives and mitigate interruptions that could affect supplier inventory levels and product delivery.

It’s clear that today’s procurement leaders must create a process that allows contingencies for logistics and raw material disruptions, manage multiple suppliers, factor in tariffs that affect raw material costs, while finding alternatives to embargoes and trade wars, and help manage the global procurement plan and its associated supply chain. By using a suitable ERP solution, you can streamline this process even further, enabling your supply chain to become a strategic advantage to your business and set you apart from your competitors.