Using Technology to Transform Sourcing and Supplier Management: Build or Buy?
This is the final installment in a three-part guest series by Michael Cross of Directworks.
The first two posts of this series looked at the people and process aspects that manufacturers must consider as they start working on sourcing and supplier management transformation. Once the hiring, skills development, and process improvements are on the right track, it is time to turn to technology. If you are a manufacturer, true sourcing and supplier management transformation requires tools that enable automation, integration, standardization (but with configurability), collaboration, and real-time analytics. Email and spreadsheets cannot be your primary system, and general-purpose e-sourcing tools cannot handle the complexities of direct materials sourcing. A technology solution is absolutely required. The question is: will you build it or buy it?
Across the industry, IT departments have very different ways of thinking about the build versus buy scenario. Some view highly complex and strategically important requirements as technology that should be purchased. Others see the same scenario as their turf and have a strong desire to create the system in-house. It is a valid option, but can the complex sourcing and supplier management requirements of the manufacturer be met? This is something to consider, especially as the industry continues to evolve. And to answer this, it is very important that the business owner is specific about their needs as early in the process as possible. Here are nine items that need to be discussed.
1) They are not just building a sourcing system
For manufacturers, the requirements of the build go far beyond creating basic sourcing capabilities (RFIs, RFQs, auctions, and awards). The system must also include supporting the core processes related to the sourcing and management of direct materials, including capturing the total cost of each component, part, and assembly; sharing of technical documents (including CAD files and 3D models); project and program management; compliance activities; and parts qualification (e.g., PPAP, FAI). The system must also support key supplier management activities such as capacity management and capability profiles. And don’t forget the role it will play in terms of regulatory compliance, risk assessment, and risk management.
2) The BOM is critical
The core of what makes managing direct materials complicated is the bill of materials (BOM). The system created must be able to support complex data models. It will need to pull in the entire BOM, break it apart, source at the part level by commodity, and then bring it all back together. You also have to relate the BOM to other key attributes like commodities, programs, product lines, plants, and regions to meet reporting and project management needs. Adding to the challenge, BOMs are constantly changing.
3) Online templates
Also critical to direct materials sourcing is the creation and usage of online templates to gather quote data and other information from suppliers. This practice involves much more than offering the ability to upload a spreadsheet, document, or PDF. As buyers and suppliers enter information, data entry validation is required. You need to support different templates for each commodity type, region, program, etc., but still roll up to a high level to meet global reporting needs. Templates often get adjusted on the fly and require real-time support.
4) Technical document sharing
The ability to provide suppliers with controlled access to technical documents such as 2D drawings and 3D models is another crucial component of any direct materials sourcing and supplier management system. The system needs to be able to control who views, downloads, and prints the shared documentation. Permissions must be set and managed at the supplier, company, and user level, and there must be full audit trails. Sending these (often large) files via email or FTP puts a manufacturer at risk of intellectual property (IP) issues.
5) Workflow automation
A key driver behind transforming sourcing and supplier management is the ability to establish and automate workflows. The sourcing process flows across many departments and includes many gates, checks, and balances. There are many workflows that need to be created, and each needs to be configurable from project to project, as workflows can vary based on a wide variety of factors.
Figure out the level of scale and configurability needed. The system must be able to handle thousands and thousands of internal users and suppliers, and around the clock, due to the nature of global sourcing. In addition, the system needs to store large amounts of item information, supplier company details, documents, discussions, and other sourcing related data repositories.
Configurability will be required for different commodities, product lines, and regions. Expect the need to configure the system all the way down to the user level in order to create ease of use and to drive adoption.
There will be ongoing integration requirements – multiple feeds in and out. Expect to integrate into systems of record such as ERP, PLM, parts master, supplier database, document library, and user management (via SSO). Also expect to integrate with third party providers of market data, supplier information, and so on. Keep in mind that integration takes maintenance; it is not “one and done.” Whenever either integrated system is upgraded, the integration needs to be re-certified.
9) Ongoing global support
For most manufacturers, sourcing is a global activity. Even if your offices and plants are limited in scope, potential suppliers will surely be in all parts of the world. The system must be able to support foreign languages, different currencies, and international units of measure. Help must be available 24 hours a day.
As you can see, the business requirements for the desired system are quite complex and require long-term commitment and service support from IT. If they choose to build it, make sure they know exactly what they are signing up for.
This series was based off Directworks’ new paper, A Manufacturer’s Guide to Transforming Sourcing and Supplier Management. If the topic of supplier collaboration is one that you would like to delve into further, join Pierre Mitchell and Directworks’ Stacy Leidwinger on next Wednesday’s webinar.