Manufacturing: Solving 4 Major Challenges for Procurement
Last updated Feb 7, 2022 - 4 min read
- Table of Content
Manufacturing companies of all types face several unique procurement challenges. With a dated spend management solution (or no solution in place at all!), managing these challenges can be very difficult.
If you're a procurement professional in manufacturing, no matter the product or service, chances are you're triangulating demands from Management, R&D, Operations, and your end customers. This complex optimization problem comprising cost, innovation, sustainability, and more, requires best-in-industry spend management to drive competitive advantages.
From a solution provider perspective, we often observe several pain points that recur across manufacturing businesses. Manufacturers aiming to keep up must look to new procurement technologies to adequately address these problems. Otherwise, the below challenges will forever hold them back.
Full Spend Overview Across the Entire Business
Large manufacturing companies usually manage operations across multiple sites. Scattered production facilities often entail numerous non-communicating or non-harmonized ERP solutions and systems. The challenge creates an artificial barrier to utilize procurement data and ultimately drive insights from it. Consequently, procurement needs a solution to help consolidate vital data across different locations and systems - a single source of truth for providing them with the right data at the right time.
Consolidating spend data is a crucial first step in getting a complete business spend overview. But for many manufacturers, challenges related to poor or inconsistent data quality could hinder the necessary insights. Inaccurate data comes in many shapes and forms. For example, the same supplier might have different names throughout the data sources, or part numbers might not be standardized, making it hard to get a full perspective. Thankfully, utilizing a spend management solution with built-in data cleaning capabilities will help mitigate the problem. Improved data consistency ensures more accurate spend insights and added value across the business.
Category and Item-Level Insights
Category management is a widely used strategic approach to procurement in manufacturing companies. And as we all know, classifying spend is a prerequisite for succeeding with category management. Many procurement teams, especially in manufacturing, find it challenging to classify their spend. The large amounts of data make it hard to allocate spend to the different categories accurately. For procurement, AI-driven classification algorithms provide a helping hand for quicker, automatic, and more precise spend classification. However, please don't forget that human experts also play a vital part in this collaboration.
More correct spend categories drive better category insights, but this is only part of the puzzle. For most procurement professionals working in manufacturing, item-level data are readily available and essential from an analytics perspective. However, the lack of standardized item-level data challenges these more granular insights. For example, product names may differ between business units and systems due to different languages applied. But once again, the power of machine learning algorithms comes into play. Intelligent tagging capabilities, such as keyword (automatically translated) or UNSPSC tagging, could help standardize the data.
Tracking of and visibility into savings
Savings and spend optimization is often a top priority for manufacturing companies and their procurement functions. Cost management is currently the prime concern for most CPOs, commanding nearly 8x more focus in day-to-day operations. Procurement’s contribution to the organization has never been more critical, whether supporting survival or enabling investment for the future.
Time and time again, we meet procurement professionals struggling to gain visibility and keep track of their savings. More often than not, Excel is the go-to tool introducing a set of challenges, such as complex formulas, limited transparency, and manual and time-consuming data management. Given the already limited procurement capacity, it's vital to utilize savings performance features in a spend management solution. Automated, real-time, and accurate savings tracking ensures the best possible outcomes. Also, managing initiatives in a cloud-based solution provide more visibility into the savings pipeline.
Missing Out on Indirect Spend Opportunities
For most manufacturing companies, direct spend accounts for the majority of total spend. As a result, it's no surprise that the larger, direct spend categories get allocated more procurement resources and, ultimately, more attention.
Considering that cost management is a top priority, it's imperative not to neglect the indirect categories. From a savings perspective, there may often be significant opportunities for cost reduction within these categories. And why is that, you might wonder? Being frequently overlooked is part of the equation. But more importantly, the existing ERP or procurement solutions mainly supports the materials, products, and services directly related to the end product. Hence, procurement needs help to increase spend under management and drive insights across all categories and suppliers.
Do any of the above challenges seem familiar to you and your business? If so, you are not alone. Fortunately, Ignite Procurement helps you overcome all these challenges - and more.