By Jacques Adriaansen, Co-Founder, Every Angle
What do you see when you identify a supplier, as part of your supply chain procurement process? Do you see a necessary evil that must be negotiated before you can make a profit? Or do you see a potential strategic business partner that could play an active role in helping you to make money? Every day, I see examples of businesses who fail to see that there is a big difference between earning money from suppliers and earning money with suppliers. Of course, there are certain, specific cases where pressurising suppliers may be the only option available. However, in most cases, it’s clear that collaboration is by far the most effective approach.
Let’s face it – the objective of any business, regardless of its focus, sector or expertise, is to save costs, while at the same time, ensuring a consistent level of quality. This is especially true for those who find themselves dependent on a supply chain. It’s a fact that makes it even more bewildering to consider that the impact procurement can have on supply chain performance is still grossly underestimated in most organisations. Of course, most organisations keep a close eye on costs when they buy from suppliers, because after all, the purchase price is important.
However, they should also not forget that solid supply reliability is just as important – if not more so – when it comes to preventing disruptions in the production process. Remember that incomplete deliveries or deliveries that arrive too late or not at all, can have a significant and negative impact on overall business performance. All of which is why more focus needs to be placed on the role of procurement as part of overall operational excellence strategy.
Past experience shows that a lot is to be gained from streamlining delivery schedules. Meat-processing systems manufacturer, Marel, is a great example of how to do this effectively. By giving suppliers information about future demand as early as possible, it has managed to improve efficiency of its plant by as much as 40%. In the past, all Marel could do was tell suppliers which purchase orders were outstanding. This meant that it had no insight into potential peak loads at their suppliers and were thus unprepared to deal with the consequences.
As a result, some suppliers were unable to deliver on time, which often resulted in a severely disrupted manufacturing schedule. By including the purchase order requisitions as well, they were able to gain a better insight into the peak loads at suppliers which they themselves generated. Based on these insights, they are now able to decide to bring orders forward or to postpone them. As a direct result, they are now able to identify which goods are delivered with greater consistency and ensure that schedules remain stable. Marel’s suppliers are now almost always able to meet the required level of demand, which means that it is now able to manufacture more efficiently and at lower costs. It’s an interesting example, as it really shows how using the available data more effectively can play a considerable role in contributing to operational excellence as a whole.
In practice, procurement departments deal with hundreds of outstanding purchase orders every day, many of which may be overdue. Clearly, it is not cost or time-effective for them to chase all of those. Instead, they need to be able to quickly assess with purchase orders really impact production or delivery to the client. After all, why spend time and energy on things that have hardly any impact? Conducting this analysis in SAP can, however, be a complex process, requiring procurement departments to go through the same steps for every individual order. This can make establishing the relationship between a purchase order and a sales order almost impossible.
Production companies have to be aware of the fact that collaborating with suppliers and generating insight from procurement to final delivery, can have a major impact on the performance of the supply chain. By paying more attention to this element of the supply chain, a great deal can be gained in terms of efficiency, productivity and ultimate cost savings. For example, it can help you to prevent bottlenecks in the production process, reduce backlogs, detect delivery risks and optimise the workflow.
Don’t forget that procurement is not only responsible for good price agreements. It also plays an important role in improving the collaboration between supplier and client. The upshot of this is true collaboration, with suppliers being given the opportunity to contribute their knowledge and with buyers making good use of that knowledge. It’s a model that some of the best, most effective operations follow – are you following in their footsteps?