New Research: A Direct Materials Guidebook — Six Key Principles for the Manufacturing Road Ahead

Spend Matters and MetalMiner are excited to announce the publication of our most recent research brief covering the direct materials procurement marketplace: A Direct Materials Guidebook – Six Key Principles for the Manufacturing Road Ahead. In this Spend Matters Perspective, authored by Jason Busch, Managing Director Research, and Thomas Kase, Principal Analyst, we suggest that any future evolution of direct procurement will undoubtedly build on the significant shifts we've seen in global manufacturing in the past two decades. In this next stage of growth, Spend Matters believes technology will catch up to current market requirements.

This rapid evolution has not changed the core differences of direct spend compared with other procurement areas (e.g., indirect, services). Fundamentally, unlike indirect procurement, direct purchasing is about buying quality and delivery capacity while managing against time and risk. Price, historically, has been a relatively secondary focus because in many cases, more advanced procurement teams put targeted price/cost models in place as they became more organizationally mature. Any future evolution of direct procurement will undoubtedly build on this past focus.

In addition to focusing on the business skills and process change required to drive a new level of direct materials sourcing and supplier management success, this transition requires a new system of record for direct materials. This research brief offers a guidebook to this transition. We believe there are six themes that companies should include in their broader direct materials sourcing guidebook -- focused on technology and beyond. These are:

  1. Don't be at the mercy of the global market
  2. Remember all the time that your name (i.e., your company name) is on the box
  3. Don't take a generic approach to your industry-specific needs
  4. When suppliers become your strategic partners to success, everyone wins
  5. Break down the walls between engineering and sourcing at all costs
  6. Build a bridge between your PLM and sourcing solution capabilities

This Spend Matters Perspective explores these six themes in detail as well as the broader direct materials sourcing environment today. It concludes with a snapshot of some of the direct materials platform requirements that companies will deploy in the decade to come.

Regarding technology, in addition to focusing on the business skills and process change required to drive a new level of direct materials sourcing and supplier management success, this transition requires a new system of record for direct materials as well as a new way of thinking about how best to support business requirements. During this time, direct materials platforms will become as important as transactional procurement (P2P) and VMS (services procurement) systems in the coming years. These platforms will enable the following capabilities:

  • Bridging CAD/CAM/PLM systems to share design and collaboration with sourcing professionals and suppliers -- at all stages of the product lifecycle
  • Creating multi-tier supplier collaboration with sourcing, quality and supplier management processes
  • Moving away from static spreadsheets to total cost modeling tools that constantly gather and incorporate new internal, supplier and market (e.g. commodity) pricing elements through advanced sourcing approaches
  • Getting beyond rigid FX and reverse auction processes to enable a new level of flexibility, visibility and transparency through advanced sourcing approaches

The direct materials road ahead requires a rethink of systems -- not just processes and talent. The best preparation is to look for potential uncertainty and have agile systems and processes in place. Just as we've argued on Spend Matters that the new procurement environment requires a combination of new skillsets and technologies to effectively manage indirect, services and commodity/raw material spend, so too does the climate call for an overhaul of how we manage our overall direct procurement efforts focused on parts, components and finished goods.

If you're looking for detail into the "why" and "how" about how this transformation is taking shape, we encourage you to download A Direct Materials Guidebook – Six Key Principles for the Manufacturing Road Ahead today. The paper is part of the Spend Matters Research Library, a service that offers free access to over fifty Spend Matters papers to qualified procurement and supply chain practitioners. Providers, including software companies, consultants, BPOs, staffing firms/MSPs, etc., can access the Spend Matters research library by becoming Spend Matters PRO Core (single seat) or Premier (company-wide) access members.

Want even more? Join us for a webinar on the topic on July 17 from 11am-12pm CDT.

- Jason Busch

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