5 Procurement Strategy Initiatives for Untapped Savings in Manufacturing

Posted by Jim Kurtz on Mar 26, 2021 8:00:00 AM

Procurement Strategy

Most of us were glad to see 2020 come to an end. Many changes brought about by the pandemic are becoming permanent, causing businesses to respond in new and innovative ways. Suppliers have had to react to pandemic-driven disruptions in creative ways, and the impact of demand shifts along the supply chain has caused procurement organizations to need to quickly adapt. 

A return to normal is not likely in the cards anytime soon, if ever. The new and evolving marketplace environment is driving companies to reassess present methods and strategies and to develop new approaches that will meet these challenges effectively. Making carefully studied and well-crafted changes to a company’s existing procurement strategy can result in more bottom-line dollars.  

Revised business models that embrace or anticipate the impact of current trends will help procurement, manufacturing, and other organizational functions. Strategic Resource Management (SRM) is uniquely positioned to help manufacturers assess current trends, review strategies, and align revised procedures to take advantage of current and future marketplace conditions. When your organization works with SRM, you have a dedicated partner working closely with you to increase efficiencies, reduce costs, and adapt to the marketplace. Helping companies prepare for a rapidly changing future is at the core of SRM’s consulting approach. Here are five important procurement trends that have recently emerged. 

1. Increases in Marketplace Volatility

Although we have closed the door on 2020, 2021 will have a new set of challenges. An effective company’s strategy must be able to quickly adjust to changing market dynamics. New circumstances impacting the global supply chain, such as droughts, floods, and geopolitical issues, can arise at a moment’s notice. 

Changing conditions can result in business closures, supply chain disruptions, component shortages, and market changes. These events can cause consumers to abruptly alter their spending habits, meaning businesses must respond quickly. Flexibility should be built into any revised manufacturing procurement strategy.

2. Internal (Departmental) and External (Supplier) Working Relationships Drawing Closer

The time it takes to complete each procurement step should be analyzed to ensure unnecessary tasks are eliminated. To remain agile, companies should carefully manage internal and external communications, and departments must develop closer working relationships. Software and databases that provide real-time data to all departments are becoming increasingly important. A procurement strategy should include having readily accessible and up-to-date information across the enterprise.    

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3. Expanded Use of Blockchain, AI, and Software Technologies

The use of blockchain is increasing across industries as applications such as smart contracts are finding greater acceptance. Platforms now provide AI, cross-chain and relay chain capabilities, and inter-chain communications. These new approaches mean expanding scalability, functionality, and speeds. Applications built on top of blockchain networks manage the process of assessing vendor risk, reducing lead times, and allowing for best-in-class pricing. 

4. Increased Demand to Deliver Value Beyond Dollar Cost Savings

Value delivery includes assisting organizations in achieving product speed-to-market, improving corporate image, reducing complexity, and meeting schedules and quality requirements. Including strategy components to advance these values strengthens ties to other departments and suppliers. For example, improving packaging designs and reducing packaging costs can benefit many departments.

5. Changes in Existing Long-Term Relationships and Contracts

Increasingly, long-term relationships and contracts may become invalid, counterproductive, or unworkable due to changes and volatilities in the marketplace. Long-standing arrangements, such as make-or-buy decisions, should be scrutinized. It is important to review long-term contracts and develop revised strategies in light of new circumstances, anticipated customer demand, or market changes. 

For agreements presently in place, suppliers may find new arrangements and terms advantageous. For example, it may be possible to improve performance for both yourself and your supplier by modifying delivery schedules and quantities.

Developing a new and adaptable procurement strategy means understanding current short- and long-term trends, assessing supplier capabilities and risks, and recognizing realignments along the supply chain. When you work with SRM, once we have a clear understanding of your present situation, we draw on our extensive experience working with complex business environments to complete cost benchmarking, simplify vendor negotiations, and review and refine contract terms. 

Anticipating the impact of current trends on procurement strategies is SRM's forte, and we will partner with your company to craft procurement strategies that work. With bill of material costs averaging around 70%, our clients enjoy significant savings in the 15-25% range. 

  1. SRM is committed to helping our clients quickly adjust their strategic direction to compete in today’s marketplace. When you work with us, we’ll develop strategies by completing the following broad steps: 

  2. Analyze your current situation, including your pricing data, internal spending, and supplier conditions.

  3. Define and establish objectives.

  4. Develop policies and procedures.

  5. Formalize strategies and communicate them to your company team members.

  6. Assist with executing the revised strategy and tracking results.

Now is the time to reduce your costs and tailor custom strategies to meet today’s market conditions. Contact SRM today to schedule a meeting to discuss the advantages of reviewing your manufacturing procurement strategies. 

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Topics: Manufacturing