The importance of strategic sourcing in manufacturing

In manufacturing, an influencing factor in overall operations is the supplier side of the supply chain. There are different aspects where parts and raw materials don’t get delivered on-time and at an affordable rate, affecting customer relations further down the supply chain as well as the bottom line. As a consequence, supply planning must be an integral part of any company’s operations. One strategy to incorporate in this process is strategic sourcing. It can help businesses better plan ahead for logistical, financial and other issues that can greatly hamper the ability to create goods and improve efficiency. Enterprise resource planning software such as Microsoft Dynamics NAV can help make this strategy easy to implement.

Matching up with particular interests
Strategic sourcing, as noted by Purchasing Insight, is basically establishing procurement practices that align specifically with business interests. It comes from understanding not only how the company operates, but also from having a clear view of the supplier market. This can include various issues that make it work, such as the source of raw materials, the logistical efforts to transport them, the commodities market as a whole and the various tariffs and fees to get needed goods if the shipment is international. All of these intertwining factors can greatly impact the bottom line of a business, as whatever costs it receives ultimately gets handed down to the customer.

The key to functional strategic sourcing is spending data, determining how much it costs over time to acquire materials or parts for creating specific goods. A company should have some visibility as to how much money they need to procure various items, with a clear and reliable understanding that matches with reality. The one problem is that businesses, particularly manufacturers, don’t gather as much of this information as they should. Sometimes their data is lopsided, with a lot of it coming solely from within the organization and very little coming from the market. Other times, it’s merely just a lack of due diligence. Either way, incorporating business intelligence features into an ERP platform can be a great help, since it can gather both sets of information to provide ample analysis.

Creating efficient and cost-effective supply planning
There are a lot of different reasons to incorporate strategic sourcing into manufacturing operations. Often, the potential takes time to show itself. Supply chain expert Frank Castiglia cited a survey by the Aberdeen Group, which found that while only 20 percent of businesses with recent implementations of the practice saw it as being critical, 53 percent of those with longer deployments of five or more years said the same thing.

Still, there are immediate benefits associated with the use of strategic sourcing. For example, the same Aberdeen survey found the most prominent reason businesses enjoyed using it is the increased cost savings. This is an obvious factor because knowing ahead of time the different issues between suppliers and transport methods can help companies procure from the most affordable sources more effectively. Similarly, a large number of professionals noted a lower percentage in savings leaks that come from unexpected events such as a labor action or inclement weather.

Alongside the immediate cost benefits, strategic sourcing can provide a better method of supply planning. Supervisors can have more control over critical spending categories, whether it’s materials, parts or chemicals. In turn, they get a clear picture of spending history as well as any non-cost factors that appear such as part quality, environmental impact and reliability. Using this method of sourcing can help manufacturers more effectively align their suppliers with their operational objectives.

Businesses interested in improving their supply planning should download the white paper “Microsoft Dynamics NAV Supply Planning” today.

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