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Manufacturing and Direct Materials Sourcing:

A Planning Guide for the Next Decade

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, we see five key tactics and strategies procurement organizations are beginning to deploy, often in tandem, which will form the basis of 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

This Spend Matters Perspective explores these five areas in detail as well as broader trends in the global manufacturing and policy climate impacting sourcing and related supplier management and supply chain decisions.