Exploring a Decline in Global PMIs and Related Manufacturing Procurement Strategies (Part 2)

In the first post in this series, I provided the Cliff Notes version of some of the topics and data we recently delved into in greater detail in a joint Spend Matters / MetalMiner direct materials procurement webinar as well as the Spend Matters Perspective: A Direct Materials Guidebook – Six Key Principles for the Manufacturing Road Ahead. As we continue this analysis today, we'll get past the numbers and manufacturing outlook by exploring sourcing and related procurement strategies given the current economic and industrial climate. To start, it's clear that procurement organizations want to improve at minimizing the impact of commodity price volatility. We're seeing an increase in the number of requests for assistance with commodity price forecasting, for example, among our readership.

Yet beyond forecasting and general sourcing strategies (e.g., the greater usage/deployment of advanced sourcing capabilities leveraging sourcing optimization tools), we're also seeing companies think about how they can plan more effectively in a centralized manner while enabling the arms and legs of the procurement organization to execute in a decentralized manner. In another recently published research brief, Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade, we note that perhaps the most imperative strategy for procurement organizations in direct materials procurement and supply chain execution is the ability to think globally while acting locally. Leading manufacturing organizations have long realized that truly centralized procurement will never be a possibility, especially for direct spend.

More advanced use cases may involve different sourcing workflows for named categories in regions where the potential for fraud is more prevalent. For example, an organization might configure a centralized system in certain Asian countries where supplier collusion and kick-backs are common to only provide detailed supplier information (other than named supplier A, B and C) to high-level executives outside the specific country a bid is taking place, to prevent the sharing of information between local rogue managers and the supply base, an unfortunate practice that is more common than many organizations would like to believe.

Centralized policies and systems with localized workflows and permissions are also going to increasingly permeate the practices of leading companies in the areas of eProcurement, direct materials MRP procurement, electronic invoicing, invoice discounting and contract management, enabling a centralized view of contracting, buying and supplier management activity while allowing for decentralized (but controlled) activity and action. Given the recent manufacturing PMI downturn, the ability for companies to rapidly effect global execution based on changes to centralized policy (e.g., working capital strategies, order quantities, inventory levels, etc.) is higher than it's been in recent years. Indeed, the ability to react not just correctly, but quickly, on a global basis, will be key.

- Jason Busch

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