Procurement Savings in Manufacturing: Tracing Root Cause Bottleneck Issues

Please click here for Part 1: Transition Suppliers, Part 2: Culling Top Performers and Part 3: The Operational Perspective 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.

Based on our experience, we can trace the savings bottleneck back to a number of key challenges. These are:

  • Insufficient resources--organizational resources are generally allocated to other projects,? and thus aren't readily available for implementation projects when needed (or lack the implementation project management and implementation domain expertise required to drive results). Managers and skilled workers who carry out implementation activities often have other operations jobs, making it difficult for them to focus on implementation full-time.
  • Ability (or not) to leverage commodity-specific implementation processes--the ones that drive cooperation between functions. Functional teams (i.e. purchasing, operations such as manufacturing and quality, supplier quality assurance and supplier development, product engineering, production control, logistics, and supplier (commercial, engineering, and quality) typically work in their own silos and focus on addressing only issues and problems that directly affect their operations. This myopia complicates and thus prevents key stakeholders from aligning to execute a world-class implementation process to deliver benefits for the entire enterprise.

    Additionally, processes that are created once are normally not shared across the organization for repeatability, which makes internal collaboration even more challenging.

  • Lack of globally deployed staff--the lack of staff with supplier implementation experience and knowledge in cultural paradigms make global and regional sourcing more difficult. For example, it's not uncommon for a procurement organization to send a manager with limited international experience from a US site to China every few months to check on progress. Often, the employee will not know how to work in the supplier's country and, as a result, will not be able to adequately manage or keep track of progress.
  • Lack of visibility and accountability--organizations lack visibility and accountability into the implementation process, and they often lack the ability to track potential sourcing savings at the item level. Senior-level customer contacts can rarely access details on implementation process delays, making it difficult for them to track potential sourcing savings. In addition, managers rarely have the ability to assign accountability throughout a process. Users generally lack the ability to store, view and collaborate on all relevant implementation documents without expensive installations and upgrades to both customer and supplier.

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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