Manufacturers have been experiencing a gradual weakening of traditional operating models and now find themselves constantly reevaluating how to move forward. Procurement leaders are at a crossroads; they are overwhelmed with day-to-day challenges and the external factors impacting them, ranging from internal industry volatility to external policy-driven inflation challenges. And yet, they must look to the future.
That future is being shaped by the rapid advancement of technology, driving digital automation in the supply chain. Becoming a more thoughtful, faster, data-driven business means adapting to a new world of constant change, increased capabilities, faster corporate processes, and the ability to take advantage of untapped opportunities. Using technology to transform capabilities, talent pool and insights will help companies advance in the competitive business wars. Those that do will move closer to the greater goal of ongoing digital transformation of the supply chain in 2023 and beyond.
Getting There by Embracing Emerging Digital Procurement Processes
One way is to support procurement leaders by educating them in emerging digital procurement processes. Case in point: artificial intelligence (AI) and machine learning (ML) technologies now offer new capabilities in the procurement process, and learning about them in depth is essential to generate willingness in leaders to test them.
The following strategies are designed for procurement leaders to help their teams move quickly to improved growth and operational excellence.
1. Move to a Single Source of Truth for Materials Management
When an organization’s data management process is splintered or broken, it could lead to wasted materials, poor purchasing policies, and unfortunate write-offs that hit a company’s annual costs.
Relying on this shaky data for insights into material availability or inventory numbers is an inexact science. So it’s not helping procurement leaders when they need to determine if a quantity of a spare physical component has been ordered, received, and issued. And this is assuming that storage rooms in buildings are hyper-organized.
As a result, spare components for production equipment may be in a different location from where they are said to be. Furthermore, ERPs that include crucial SKU information frequently need to be connected and updated for various reasons (M&A, expansion, installation date, etc.).
Thus, one of the first business strategies should be to rely less on faulty data and instead move to a single source of truth. Using a platform for intelligent supply optimization can bring about this change.
Seeing your materials and spare parts data through a single source of truth helps you be more strategic with your procurement efforts. Managers will be able to see supplies available at the right time. This insight can increase productivity and lower costs by harmonizing data inadequacies for more efficient materials management.
2. Lower Excess Tail Spend
One of the key areas in which to find excess is in tail spend, those high-volume goods that make up a sizable portion of total spending due to inefficiency, free text purchase order volume, and inability to track contract leakage. If procurement leaders significantly reduce tail spending, they will find considerable financial savings on the far end.
Leaders can reduce their tail spend by organizing their data to help with category management. Review your processes and systems from there, and manage the data using AI and ML systems to simplify and scale your procurement processes.
Another way to reduce overall spending in the supply chain is to foster better communication between manufacturers, suppliers, and distributors. These parties can collaborate with procurement partners to lower risk and reduce overall tail costs.
3. Increased Collaboration
Following the above, increased collaboration between operations teams and procurement leaders can help save money and improve efficiency for both groups. Knowing which spare parts are on hand when needed can help ensure production continuity. It can also promote parts replenishment needed for production increases during promotional events, fluctuations in seasonal demand, the introduction of new, competitive products, and more.
For instance, the RFx process can be streamlined by using AI models to help businesses overcome data inconsistencies and discrepancies. This will increase the match rate for materials requested by customers and prospects and allow suppliers to respond in hours rather than weeks.
Business teams collaborating on procurement and operations management will prosper through the ability to overcome data discrepancies that can spark misguided strategies. This increased collaboration will also help to avoid duplicative efforts within the organization.
4. Amplify producer-supplier teamwork
I see a future that mobilizes AI-driven collaboration between producers and suppliers. AI models can help us move past the tedious process of cleaning up dirty data and eliminate these data-dependent manual processes.
Companies can overcome varying data issues and streamline the RFx process by creating a trusted data supply between producers and suppliers. In doing so, this teamwork can even foster better collaboration for the suppliers with their customers.
More teamwork on data sharing can result in growing the resilience of supply networks, via access to demand signals that allow all parties to plan accordingly. Eventually, this can lead to more straightforward steps in buying and selling, as well as easing risk across the supply chain.
5. Grow Inventory Visibility
Businesses are moving quickly to build digital and data teams (per a recent Globality study) to understand their data practices better and grow their inventory visibility. More predictive insights into supply chain disruptions can help companies react faster to unscheduled outages.
Having younger employees onboard who know AI and ML data processes can go a long way when training veteran and experienced data professionals. Together, they can grow their inventory visibility with these new systems.
Forward Motion
These five strategic areas should help you to formulate new thinking around your procurement processes and inventory management. In addition, looking to further digital transformation is a must in 2023.
Manufacturers who embrace purpose-built software solutions will strategically improve their procurement and operation. With the right tools, organizations can achieve more substantial revenue growth in the years ahead.
Paul Noble is founder and chief strategy officer of Verusen.
