In today's business world lack of agility is a problem. Bad weather, earthquakes and geopolitical events can disrupt supply chains with little or no warning. A procurement function that fails to respond risks shutting down manufacturing. And conversely, if product demand jumps unexpectedly procurement needs to increase supply shipments or customers will go elsewhere.
Agility enhances a manufacturers ability to respond to unexpected events. Here we'll share five techniques for improving the agility of your procurement function. But first, let’s take a closer look at what agility means and why it matters.
The modern procurement function follows defined processes and procedures. These ensure rigor in supplier selection, control prices and help govern the quality of purchased items. However, these same processes can take away the flexibility to cope with problems and opportunities. Problems could include shipments delayed by bad weather or industrial disputes and an opportunity might be a demand surge following an unexpected celebrity endorsement.
In “Agile procurement: managing risk and volatility” consultants at McKinsey argue there are three types of agility: preemptive, detective and responsive. Preemptive is about preparing for supply chain issues. This includes setting inventory levels as well as looking at how the product design and manufacturing processes can handle inputs from various sources. Detective agility is, as the term suggests, about gathering data and looking for clues to future problems. And responsive agility refers to anticipating and planning for things that could happen. Contingency planning, in other words.
So with that understanding in place, how does your business improve their procurement function agility?
1. Map and streamline processes
Take a page from the Lean Manufacturing playbook and map the process flow. Then look for ways to remove activities that don't add value and try to parallelize others. For example, start discussing contract terms during the sourcing stage rather than afterwards. This will help onboard new sources in less time.
2. Utilize technology
Effective procurement functions like data, but capturing those numbers can be laborious and leave little time for follow-up analysis. Explore the functions of your ERP system and look for ways to integrate with supplier systems. Make paperless purchasing a goal!
3. Leverage analytics
Could there be as-yet unrecognized factors affecting supply stability? That's where analytics comes in. Look for tools – cloud-based or local – that will draw together all your supplier data and provide new insights into risks and opportunities. Then drill down past the Tier 1 and 2 suppliers to those in 3 and 4 where unrealized risks might lurk.
4. Create vendor-supplier alignment
When suppliers and customers share the same goals you have alignment, and that leads to increased commitment and deeper support. Consider how Terms and Conditions can be adjusted to ensure both partners share in the rewards of closer cooperation.
5. Invest in talent development
Agile procurement is bigger than just purchasing and requires different skills. Process mapping and increased use of technology will automate or eliminate some existing activities and leave people underutilized. Take the opportunity to reskill and retrain so they people can take on the preemptive, detective and responsive work procurement agility requires.
Hartford Technologies is a leader in the production of rolling element bearings, custom bearings and assemblies. We work with manufacturers in sectors ranging from automotive and energy to consumer goods and aerospace. With manufacturing in both Asia and North America we are positioned to weather the unexpected and are fully invested in the success of our customers, contact us to learn more.
Hartford Technologies, Inc.
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