4 Best Practices to Support Direct Materials Sourcing with Technology, May 2018

Direct materials sourcing is complicated, and buyers are under constant pressure to pick the right suppliers and reduce risk, all while taking cost out of the product. Thankfully, modern information systems have matured to the point where they can offer significant support to ensure that those responsible for direct materials sourcing have every tool needed to improve decision making and decrease cycle time. Such tools can empower leaders to more effectively manage suppliers, bills of materials (BOM) for new product introductions (NPI), collaborate on product design, digitize business processes, and ultimately deliver more value to the organization.

Manage suppliers & leverage supplier information

Supplier management is a foundational element for effective direct materials sourcing, and procurement enablement solutions make it possible to capture various types of supplier information such as certifications, capabilities, risks, performance scores, and history (quoting, awards, quality, etc.) all in a central supplier profile. Sourcing solutions can make it easy and convenient to collect relevant information from small and midsized enterprises (SME’s) throughout your organization, directly from your suppliers as well as third party data sources (e.g. risk, etc.). This data can then be made available throughout the solution so key personnel don’t waste time searching through multiple spreadsheets or systems to collect additional information to make the right decision at the right time. For example, when evaluating supplier RFP and RFQ responses, relevant supplier non-cost factors such as risk and performance scores can be included directly in side by side comparisons along with quotations.  The combination of supplier profile and quotation elements help buyers to realize that the lowest cost supplier is not always the best choice and make a more informed sourcing decision.

Improve NPI transparency & evaluation

Launching new products requires a cross functional team, however, it is often difficult for stakeholders to view the holistic status of bill of materials (BOMs) because the evaluation, tracking and analysis is completed in a spreadsheet. Spreadsheets can be challenging to manage, update, and even share in a controlled manner. The evolution of direct materials sourcing includes moving BOM evaluation, tracking and analysis from spreadsheets to the sourcing solution. This evolving capability can streamline and deepen the supplier selection and evaluation process by connecting RFQ sourcing results and supplier profile information, giving stakeholders a 360⁰ view of a BOM’s cost and non-cost factors in one view. Buying organizations can also simplify data management for buyers with an integration to product lifecycle management (PLM) and/or enterprise resource management (ERP) systems.

Improve access to supplier innovation

Direct materials suppliers have a great deal of expertise in their fields, and most successful manufacturers expect their suppliers to suggest innovative ideas, features and capabilities to support new and existing products. Email is the most common method used today to exchange ideas, however, drawbacks to this exist such as such as poor record retention and inconsistency in ensuring that the right stakeholders have an opportunity to access and provide input. Sourcing solutions designed for direct materials often include collaborative features that improve cross functional team and supplier communications that are searchable and permanently retained. These same tools may include the ability to share design documents (e.g. drawings) between the buying team and a supplier as they discuss potential innovations.

Optimize sourcing processes, quotation collection & analysis

Best in class supply chain organizations implement standard sourcing processes to ensure product requirements, company standards and performance expectations are consistently achieved the first time with minimal rework. However, it still takes manual effort to track and report on progress and all to often we hear how doing something the “right way” takes too long.  Thankfully, many sourcing solutions include business process workflow capabilities that help to ensure the organization’s sourcing process is followed and status is automatically tracked.

Today buyers can send standard quotation templates to suppliers via email which can help compare apples to apples assuming directions are followed. Once suppliers return quotations, buyers must manually enter supplier quote data in a comparison template. This process can be time consuming and the likelihood of errors increases with the complexity of the quotation template, such as a Cost Breakdown. Many sourcing solutions can leverage templatized quotation forms, so fields, data and calculations are consistent and comparable across supplier quotations. direct materials sourcing frequently necessitates detailed cost breakdown data collection as part of the suppliers quote which can be analyzed with one click reporting options like a side by side comparison and “What If?” interactive analysis. This access to information helps buyers quickly validate the supplier’s competence and provides the details needed to improve the negotiation process, support benchmarking and future audits.

Recommendations for procurement leadership

Buyers focused on direct materials have a critical and often overlooked impact on the company’s bottom line.  When evaluating current manual practices as well as new or existing solutions to support direct materials sourcing, consider whether your organization can benefit from better access to supplier information, improved New Product Introduction BOM analysis, modern collaborative tools to support supplier innovation, standardized sourcing processes and cost breakdown quotation templates with advanced analysis.

Article Originally Published on EBN

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Article Written by Vishal Patel,  VP Product Marketing, Ivalua

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