New Research: Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade

MetalMiner and Spend Matters are excited to announce the launch of a combined research study, Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade. Authored by Jason Busch and Lisa Reisman, this Spend Matters/MetalMiner Perspective explores crucial elements of the skills, core technology and expertise that procurement and supply chain practitioners will need to operate in the global manufacturing environment in the decade ahead. As global manufacturing uncertainty continues into the second half of 2012, we still find ourselves (for the most part) largely mired in direct materials sourcing and procurement technologies of the past decade in manufacturing environments.

Far too many organizations continue to struggle with driving adoption of SAP and Oracle eProcurement implementations and few have turned their consistent attention to a new wave of tools designed specifically to enable the types of direct materials procurement and supplier management capabilities that can bridge the gap between traditional purchasing and supply chain functions. Here at Spend Matters and MetalMiner, we believe the next decade is going to be one where leading manufacturing organizations (from diversified industrial manufacturers to consumer packaged goods companies) will differentiate themselves not just by introducing the right talent into the procurement function -- a major goal of the past decade -- but also in how they build capabilities and practices around automated technology that transforms the way they forecast, negotiate, bring new products to market and manage extended tiers of suppliers.

This move can't come a moment too soon given the production-based world we operate in. The continued European and EU crisis will have GDP, unemployment, credit and other implications in the broader EU geographic area -- as it stands today -- for at least the next five years, if not longer. At the same time, the US is struggling through a hostile political climate to bring production back on-shore, despite politicians going through the stump speech motions. Globalization hiccups also contribute to a more challenging and highly volatile global production environment than ever before. From wage inflation in countries like China to broader total cost increases, it's become clear that managing total cost is just as important as managing quality and performance of suppliers in low cost or developing markets.

As we consider popular tactics and investments among leading manufacturers, Spend Matters and MetalMiner see five key areas and programs that procurement organizations are beginning to focus on, often in tandem, which will form the basis of broader strategies in the next decade. These are:

  • Enhanced Forecasting and Planning
  • Smarter Negotiation Tactics
  • Total Cost Visibility DNA
  • Extended Supplier Management and Orchestration
  • Developing the Right Core Capabilities to Think Globally While Acting Locally

Taking just one of these areas explored in the paper, Smarter Negotiation Tactics, it is our belief that reverse auction usage will only increase for laggard manufacturers that trail the market in overall sourcing performance. Our strong belief is that electronic negotiation formats are here to stay, but on an increasing basis, leading manufacturers are beginning to factor a total cost understanding into sourcing strategies that consider not only their idealized specifications, but also variability in supplier offers based on specific advantages amongst competitive vendors and potentially lower tier suppliers.

This is leading to what we sometimes describe as a new type of "information asymmetry" in sourcing processes. Organizations that have better information than any other party in the supply chain based on several data points gathered both in the upfront sourcing process plus the ongoing lifecycle and contract management areas stand to thrive. For example, this might allow a procurement organization to spot that a supplier has mispriced the value of a contract that locks in raw material prices for six months (versus their offer for three or 12 months).

Enabling this new type of data gathering and decision support capabilities are a range of underlying technologies, including commodity management tools that help analyze and price raw material risk and variability. But sourcing optimization (also known as "advanced sourcing") capabilities are just as important.

This Spend Matters Perspective explores areas such as Smarter Negotiation Tactics for global manufacturing and commodity management in more detail than explained above, as well as broader trends in the global direct materials and policy climate impacting sourcing and related supplier management and supply chain decisions.

Spend Matters Perspectives are available for free for qualified practitioners that register for access to our Spend Matters PRO Research Library (note, the Research Library does not provide access to PRO Premium Content). You can learn more about this Perspective and register to download it and related research on our Spend Matters PRO site. Both practitioners and providers (e.g., those that work for vendors, software companies, consultancies, BPO, etc.) can sign up for immediate access to our entire Research Library and Premium content by purchasing a Spend Matters PRO Core subscription. Practitioners also have the option of purchasing a PRO Basic subscription (which provides access to Premium Content) or can simply opt to access our Research Library (both upon qualification). Please note, those practitioners which work for organizations we classify as providers must purchase a PRO Core subscription (or corporate agreement) for access.

- Jason Busch

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