Have you ever taken the time to evaluate the current-state of your material procurement process? If you have, there’s a good chance that you found the process to be executed by people in departmental silos trying to manage several complex and interrelated processes. You probably also recognized the large amount of analysis work required to make the right purchase decisions and the almost exclusive reliance on email, phone and fax to communicate and track individual purchase orders from release through to receipt of materials. If you haven’t taken the time evaluate your current-state material procurement process, you should. You might be surprised at what you find.
Critical Role of Material Procurement
Of all of the processes in a manufacturing organization, material procurement is the one process that can make or break your operation. Manufacturers must produce high quality products, on-demand and at the lowest possible cost in order to compete in today’s global marketplace. This makes it imperative for materials managers to provide the shop floor with the right raw materials and components at the right time, the right place and at the lowest possible cost.
Complexity of Material Procurement
On the surface one might assume the material procurement process to be straightforward in its design and execution. However, upon closer examination one quickly discovers that it is not a single process, but rather a series of interconnected processes with multiple handoffs, decision points and rework loops. These processes are commonly compartmentalized in planning, purchasing and materials management organizations. Adding to this complexity is the use of third party software applications and custom Excel spreadsheets that may or may not be integrated with an organization’s ‘Enterprise Resource Planning’ (ERP) system.
Deficient Information Technology (IT) Systems
Most material procurement processes are supported by ERP systems that were designed to use a forecast methodology to determine future material requirements for both external and internal customers. For external customers, finished goods (FG) replenishment is based on arbitrary ‘days on-hand’ or ‘days of sales’ calculations that are driven by inaccurate and constantly changing sales forecasts. For internal customers, complex BOM explosions are used to predict future replenishment requirements in the form of a production forecast or plan. Internal customers use the production forecast as a primary means to communicate demand for raw materials to suppliers.
With sales forecasts constantly changing and FG BOM data nominally accurate, planners and buyers have come to rely on third party software applications and spreadsheets to “massage the forecast” before they release their production plan to supply chain partners. The result is, more often than not, a plan that does not reflect the realities of your business.
Missing from ERP systems is real-time data on the actual material consumption and replenishment patterns and the functionality to support multiple material replenishment methodologies, such as kanban.
In addition, because ERP systems do not generally extend beyond the four walls of the plant, planners and buyers are forced to use email and static supplier portals to communicate demand to their supply chain partners. Once production plans are communicated and purchase orders placed, buyers and suppliers rely on email, phone and fax to communicate changes and to track and report on the status individual orders.
Criticality + Complexity + Deficient IT Systems = Sub-optimized Process
The combination of criticality, complexity, and deficient IT systems routinely results in a sub-optimized material procurement process. The sub-optimized process creates the need for more people to support the process which drives increased operating costs and increased risk. In addition, personnel growth in departmental silos contributes to a culture where each organization is more interested in measuring and reporting on their own performance rather than on the overall performance of the end-to-end process. In the end, the entire organization suffers.
Supply Chain Execution (SCE) System – The Answer to Your Material Procurement Challenges
The answer to today’s material procurement challenges can be found in a new breed of IT system that is focused exclusively on supply chain execution. These systems are designed to address the needs of manufacturing organizations that are looking for ways to dramatically improve collaboration and execution with their supply chain partners and to reduce overall supply chain costs.
The solutions occupying this new space are called ‘Supply Chain Execution’ (SCE) systems. These systems add an entirely new dimension to supply chain organizations by providing planners, buyers and suppliers access to real-time information on consumption and replenishment of FG, WIP and raw material items. SCE also provides web-based visibility into the status of every order from release of the order through to receipt of materials.
SCE solutions also have a dramatic impact on productivity by eliminating non-value-added activities and by enabling a rapid transition from reactionary to proactive material procurement processes.
Finally, today’s SCE solutions are cloud-based, so they can deployed on-demand and start delivering value to your organization in as few as 90 days.
Download our free whitepaper entitled Cloud Strategy for Improving MRP and Supply Chain Processes for additional information on cloud-based SCE solutions. Learn how they can be quickly and cost effectively deployed into your workforce to help solve your material procurement challenges.