Integrating External Data Into Manufacturing Procurement Activities and Technology

big data

We were recently asked the question: "If you were advising sourcing and supplier management professionals in the manufacturing industry, what external data sources would you suggest they look at acquiring and integrating into their tools and processes?” While we could write a book on the subject, we’ll keep our answer short and sweet today, exploring 3 areas.

The most important place to start is in exploring what external data can tell us about our business – and how to think about where procurement/sourcing needs and inventory/demand planning may go. Our experience suggests that there are a lot of industries that have economic indicators that are quite predictive for the overall business.

One large Fortune 500 manufacturer runs its business planning in large part by examining the price, and expected price, of copper – a key leading indicator of demand in its case. Another looks at a key construction index to forecast demand.

If we were in procurement in manufacturing, we would run correlations to figure out how our order book corresponds to different indicators. Certain businesses, for example, may lag specific indexes in growth/decline by a number of months or quarters on a statistically meaningful basis. Understanding future demand is important to understand procurement and supply chain requirements and inventory planning.

For procurement, tracking individual commodity price points locally (e.g., local manufacturers/producers/distributors) is important for a variety of reasons, including the development of sourcing and hedging strategies. Price indexes can also be used to monitor performance relative to market.

Finally, building out total cost models is one of the most attractive areas to integrate external data sets. Companies are getting very sophisticated in negotiating and procurement. Customers are forcing suppliers to break out all the cost, identifying where the hidden margins are. It’s no longer a lead edge thing – more manufacturers we work with are doing it to understand, manage and forecast cost for parts, semi-finished and finished assemblies. Here, external data sets ranging from raw material and commodity prices, labor rates and energy prices are all invaluable to incorporate.

We’ll leave you with one additional piece of advice: focus on incorporating feeds directly into your technology systems. Use APIs if at all possible (and data that is available via API). Real-time data is golden for decision-making – the more current the better.

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