Procurement’s Role in S&OP (Part 2)

In the first post in this series, I gave some context around how procurement both can and should take a greater role in S&OP efforts. But how can organizations move the dial from potential procurement involvement to actual? I argue that two key procurement-led technologies can play a critical role in any next-level S&OP planning effort: item level spend analysis and sourcing optimization. By incorporating the types of visibility that spend analysis can provide into cost, on-time performance, supplier quality (not to mention risk enrichment metrics) and the decision support capabilities of the better and more flexible sourcing optimization tools extending beyond logistics, it's possible to make better planning and forecasting decisions that directly impact the outbound and sales sides of the supply chain equation.

For example, in a situation of rising demand (perhaps not due to seasonality, but rather to a consumer or economic trend), it's one thing to consider lead-time requirements from suppliers to avoid stock outs or lost sales. But in today's market, unless an organization is taking a closer look at raw material price trends and availability -- and potentially working with or on behalf of suppliers on a demand aggregation and/or demand visibility basis, not to mention forward funding certain purchases -- the potential exists that lower tier supply chain delays or price increases out of control of the immediate tier one suppliers will impact not just pricing, but SKU availability and vendor stability.

Procurement organizations that have visibility total cost build-ups and incorporate raw material price forecasting into their planning through a combination of spend analysis/cost break-down analysis and sourcing/commodity management tools can preemptively take on scenarios such as this from both a planning and execution percentage. Through better spend analysis and commodity management and forecasting capabilities, procurement can also help cross-functional S&OP teams to plan that much more effectively by moving more quickly in the data-gathering phase of any S&OP effort (which usually consumes more than 50% of the available timing window for a planning exercise).

Stay tuned as we continue to investigate ways that procurement can get more involved in S&OP and related supply chain efforts.

- Jason Busch

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