Procurement Savings in Manufacturing: The Operational Perspective

Please click here for Part 1: Transition Suppliers and Part 2: Culling Out Top Performers of this series.

This series of posts is based on content, ideas and recommendations from the following Spend Matters Perspective: Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation. In fact, some of this paper's content was first published 10 years ago by Jason Busch, David Jungling, and Jay Odell, who were with FreeMarkets (at the time). While adapted for today's manufacturing environment, the ideas represent a timeless look at a topic that few companies are fully addressing through their procurement practices today.

In continuing on with observations and recommendations from this survey, to realize sourcing savings implementation success, organizations must set up supplier implementation projects to succeed from the start by carefully choosing the right resources (internal or external) to drive new supplier adoption, leveraging a commodity-specific standardized implementation process and using technology to drive collaboration and speed up the process. The good news is that global organizations that successfully bridge the implementation gap stand to reap a potentially huge windfall.

That said, throwing headcount or software alone at the problem is not the solution. Organizations require a more robust, integrated solution that can address the implementation issue on an ongoing basis that supports both their overall supplier implementation program and tactical project execution. This requires a combination of implementation expertise (often on a global scale), collaborative processes between organizations, suppliers, and customer business functions, and software specifically designed to drive results, including collaboration between areas inside an enterprise, workflow, commodity-specific implementation workflow, and process-driven tools.

While purchase price reduction is a major driver of many new supplier adoption initiatives, it? should not be the center of all efforts. Companies must look at the overall economic impact that new supplier adoption has on their supply chain. Understanding the total cost of new supplier adoption--for all parties involved--is absolutely critical. For example, operations managers are more concerned with the potential disruption in product supply, quality issues, customer relationships, and general manufacturing excellence than in price alone. Operational managers are cognizant of how new supplier adoption can actually increase costs through an increase in scrap rates and quality defects; slowing production ramp and requiring more resources to solve the problems. This makes operational managers leery of switching suppliers, and for good reason, based on experience.

To be continued. Curious to learn more in the meantime? Download the full Spend Matters Compass research brief here: Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation.

- Jason Busch

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