Managing Product Sourcing and Collaboration from End-to-End
Procurement’s role always adjusts to support the needs of the industry and company they work in. For instance, new product development holds the key to revenue and differentiation for manufacturers. In these organizations, procurement must coordinate the efforts and interests of multiple stakeholder groups - engineering, planning, quality, finance, and logistics – not to mention suppliers.
When managed strategically, new product development combines a company’s internal capabilities with the expertise of external product and service providers to drive growth and profitability and accelerate time to market. Those supplier relationships and the collaborative potential they represent are a source of competitive advantage – one that is easier to convert into value when the sourcing process is integrated into new product development and is planned and managed from end to end.
Integrating Procurement into Overall Planning
Many companies have overall planning capabilities, but those may not extend into or integrate with procurement’s ability to plan. New product development requires everyone to come together and agree to the big picture while making part level management feasible, and both planning and procurement are critical to this effort.
The more mature an organization is, the more sophisticated they are about bringing stakeholders and suppliers together in the strategic planning process. Planning should incorporate the requirements of each group and be accessible. Despite the constant temptation, no spreadsheet is up to the task!
Ideally, there will be a continuous flow of information from organizational planning to procurement planning to sourcing and supplier selection. Once the company starts consuming a part, that same flow should serve as a feedback loop, providing transparency for all parties. Not only does this streamline the effort, but it also speeds up the decision-making process and reduces waste. In addition, an enterprise can benefit from volume price breaks when demand is planned and aggregated across multiple lines of business and geographies.
Extracting Maximum Value from Supplier Relationships
Wise organizations strive to extract maximum value from their commercial relationships. As a result, sourcing and contract management are core tools in the procurement toolkit. This does not mean, however, that cost management always equates to recklessly driving down costs or twisting the arm of a supplier during the negotiation process. It should be possible to be cost effective and strategic at the same time; for example, negotiating cost savings from suppliers after volume production.
Finally, native integration to execution systems, such as ERP and operational procurement, is particularly important for ensuring that day-to-day procurement across the organization’s geographic locations and lines of business complies with the negotiated terms. This can be especially complex in heterogeneous ERP environments, and for contracts using complex terms such as index-based commodity pricing.
As Joel Solomon, Senior Director of Strategic Customers at SAP, shared in a recent Supply Chain Now livestream, business-aligned procurement “uses data intelligence and transparency to remove waste, to make timely decisions, and become more effective and efficient by utilizing the resources and technology available to you to achieve a better approach to cost management.”
Treat Your Suppliers with Respect
Deeper supplier collaboration is not only advantageous, but also necessary. Supply partners should be treated with respect and considered a key stakeholder group. Their wisdom and experience are just as key to procurement as the products and services they provide.
Procurement must manage sourcing from end to end, and that means including forward looking plans as well as the suppliers that will make them a reality via the planning and production process. Working with so many functional teams increases the challenge, but also the value of the outcome.
The most desirable business outcomes benefit everyone involved and are the most sustainable. When the end-to-end process is also supported by smart automation and strengthened through integration, procurement realizes their best opportunity to contribute to competitive advantage.
In the same livestream, Carsten Wutzler, Director of Enterprise Performance at Deloitte Consulting, commented that, “The future will be smarter, more agile, more tech enabled, one that eliminates non-value activities and make decisions more fact-based and faster.” That is a vision for value that all companies can support.
For more insight into the benefits of having a collaborative end to end sourcing process, watch or listen to Faster, cheaper, better: Get to market faster with breakthrough innovation on Supply Chain Now.
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