Introduction
Most manufacturing organizations find that materials represent the largest portion of their costs for products. Yet, few focus on the strategic importance of systems tools, processes, or the structure of procurement. Below are some of the critical success factors for elevating the procurement functions in your organization:
Do
- Make procurement important. Make sure the procurement function is viewed as the strategic element of the business that it represents. A few percentage points of improvement in overall cost of materials will likely have far more impact than the same percentage improvement in labor. Consider establishing a senior-level position focused on managing the procurement function to identify ways to consistently decrease the cost of materials used in production. Additionally, working with a nonbiased consultant will allow you to improve your procurement system. At Datix, we understand the challenge of managing procurement using an ERP or other software. As a one-stop shop with 25 years of experience supporting manufacturers, our team of experts can provide you with the guidance to transform your business.
Leverage your supplier certification process. Having specific metrics to evaluate supplier performance is a standard beginning step for most organizations. These normally include:
- Delivery performance (Early/Late shipments)
- Cost performance (Over/Under Order to Invoice)
- Quantity performance (Over/Under quantity beyond accepted tolerance)
- Quality performance (Percentage of rejections, Percentage of rework, etc.)
You should also consider how to leverage these metrics to encourage taking cost out of materials. This can sometimes be done by rewarding a supplier with improved terms when they meet the desired metrics level and lower the price of their goods to you. In such cases, it is important to calculate if accelerating cash flow (while strengthening your bond with your vendor) is a positive trade for these pricing concessions in the long run.
- Evaluate costs throughout the entire supply chain. You can usually discover hidden money and time savings if you evaluate your entire supply chain for critical goods. Providing better information up and down the supply chain can help identify those opportunities and identify improvements in cost and delivery. To analyze your supply chain, you must have complete and accurate data. If your ERP system is holding you back from necessary assessment of your procurement and other business processes, Datix can help. No one should have to deal with an ERP system that doesn’t work with their organization. Learn how our experts work with each of our clients to provide a software solution that is tailored to their business.
- Encourage collaboration with your suppliers. Providing clear information about projected usage is just as important to your supplier as it is for you to get this data from your customers. Establish tools and processes to communicate and measure this information with your key suppliers.
- Focus on building key suppliers. Make sure the suppliers selected are the best for your business. Typically having fewer strategic suppliers is better than having a plethora of suppliers to manage. Focusing on collaboration and building strong strategic partnerships will help ensure competitive pricing for the goods and services you need.
Don’t
- Make decisions solely on price. While the cost of goods and services is a very important element of awarding a purchase order to a supplier, there needs to be consideration given to how the supplier performs in delivery and quality. Low bids may not provide a quality product on time and to the quality specifications needed, meaning that these hidden costs will drive up the real cost of the transaction.
- Treat suppliers as an enemy. Suppliers represent a critical part of your business. Engagements with suppliers should not be seen as a confrontation with an adversary, but rather as an opportunity to share information to arrive at a mutual agreement that is advantageous for both parties.
- Hoard information. Providing timely information about changes to your needs increases the likelihood that your supplier will be able to react and provide alternatives. Being open with information and communicating is the cornerstone of building a long-term relationship.
- Ignore the value of systems and tools. Failure to invest in systems and tools will likely cause over-buying, buying incorrect items, paying expedite costs and many other detrimental conditions related to managing the supply chain for your organization. Those without a simple system to track procurement are doomed to fall behind their competitors because of unnecessary corrective costs. As ERP and software experts, Datix can support manufacturers that need to invest in software to stay competitive. We promise to support you every step of the way as you achieve key business outcomes such as increased quality, reduced asset turns and improved customer service.
Wrap Up
Following these procurement Do’s and Don’ts is the first step to bringing your business to the next level. The next step is reviewing your ERP and software systems to ensure that you are maximizing all the tools at your disposal to meet your goals.
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About Datix
With over two decades in the industry, Datix is the ERP consultant of choice for manufacturers and distributors. We believe in “being the best with the best” and look for partners who match our commitment to solving real issues and doing what it takes. Our in-depth analysis of our clients and their business needs allows us to maximize their software investments to the fullest.
