5 Business Strategies for Procurement Leaders
If you’re a procurement leader, developing improved business strategies should involve advancing technology, increasing digital intelligence, and improving collaboration across in-house teams. Given these strategic objectives, digital-driven automation has become the ‘holy grail’ for procurement departments, leading to the greater goal of the supply chain’s ongoing digital transformation in 2023.
But how to proceed?
Procurement leaders, as part of their mission, should educate themselves and their teams on how to expand their organization’s capacity for new technology strategies and invest in ways to fully leverage it across all their operations. This drive can help an organization to become an intelligent data-driven operation. That means responding to change in real-time, where hidden opportunities are unlocked, business operations accelerate to meet the most pressing needs, and extending benefits to partners in the supply chain stream.
For example, supply chain systems can use digital intelligence to automatically build supplier contracts tailored to optimize compliance and mitigate business risk or to process third-party data to develop more predictive risk models.
Here are five emerging strategies that procurement leaders can utilize to help lead organizations toward operational improvement and faster growth.
1. Eliminate data deficiencies
In material management and materials inventory, procurement leaders often depend on questionable data to know if a quantity of a physical spare part or similar has been ordered, received, and issued. But facility storerooms may not be the most well-organized areas. As a result, spare parts for production assets may be scattered about. In addition, ERPs holding critical SKU information often need to be updated and connected for various reasons (M&A, expansion, implementation date, etc.)
If incomplete data indicates that the number of parts or products in inventory is less than the needed amounts, it can lead to production delays. Likewise, if the data shows too much product in stock, it could lead to waste.
Managing data may be a broken process within a given organization, resulting in wasted materials, inconsistent purchasing practices, and write-offs that result in mounting costs year after year. Therefore, a new approach is necessary, and that’s where a platform for intelligent supply optimization comes in.
It’s much easier to be strategic with your procurement efforts when you can see your materials and spare parts data through the lens of a single source of truth. By eliminating data deficiencies and relying more on materials management, managers can ensure that suitable materials are available at the right time to improve efficiency and reduce costs.
2. Reduce tail spend
Over the past few years of supply chain uncertainty, procurement leaders had to source materials from wherever they could to meet demand and reduce risk. This increased the supply base and tail spend. Manufacturers, suppliers, and distributors must work with procurement partners to help buyers lower overall tail spend. That’s important to mitigating overall spending in the supply chain mix while ensuring strategic suppliers receive larger wallet share.
Tail spend is the small percentage of high-volume items that comprise a large portion of the total spend. By focusing on reducing tail spend, procurement leaders can save significant money. In our industry, we see three distinct ways to curb or minimize tail spend:
#1: Reviewing your processes & system to identify your tail spend sources
Take a clear look at your processes & system to identify your tail spend sources. Developing a scalable, sustainable process can be a significant first step.
#2: Organize your data
Multiple SKUs often hinder the procurement process for the same item. Cleaning up your organizational data can highlight these duplicate and excess materials. In addition, establishing standard material categories and a transparent material taxonomy can simplify the number of suppliers needed and lower your overall costs.
#3: Streamline, support, and scale procurement processes with AI / ML
AI / ML technology has advanced rapidly in recent years, and its use can show where tail spend occurs and highlight overall improvement opportunities in material sharing and network spending.
3. Get on the same page with operations
Procurement and operations teams must work together to ensure the right products are in the right place at the right time. This simple collaboration process can help save money and improve efficiency for both groups.
Therefore, organizations should create a resilient system that factors in circumstances that can impact overall demand and its impact on production needs. This could include having the right spare parts on hand to ensure production continuity for new competitive products, promotional events, seasonal demand fluctuations, etc.
Businesses must work together on procurement and operations management to avoid duplicative efforts. Having the same approach can help managers within each discipline review the same data sets instead of different data sets and develop varying strategies. An organization must roll with these changes to avoid severe blockages in the procurement and operations strategy.
4. Increase supplier collaboration
In industrial supply chains, the materials data used often is incomplete, inconsistent, and ‘dirty’ due to how it passes through the systems of end users and suppliers. This data frequently needs a cleanse for manual processes and multiple siloed applications. Ultimately, it often costs the companies too much time, money, and risk.
What’s needed is an AI-driven collaboration between producers and suppliers. Using AI models,
companies can overcome data variances and discrepancies to establish a trusted supply among each other to streamline the RFx process, exponentially improving the match rate for materials requested by customers and prospects and enabling suppliers to respond in hours instead of weeks.
This simplified collaboration can help realize real-time collaboration between suppliers and their customers. In addition, by incorporating speed and scale, increased collaboration can help to eliminate data-dependent manual processes. As a result, this leads to easier buying, easier selling, and overall risk reduction across the supply chain, which can help foster resilient supply networks’ growth.
5. Gain deeper inventory visibility or capture tribal knowledge with an aging workforce & layoffs
Rounding out our essential strategy list is using AI / ML for spare parts, MRO, and supply chain optimization to help businesses gain deeper visibility into their inventory. Companies can use this elemental practice to update their internal operations while staying current with market trends and practices.
A recent Globality study showed that businesses are moving quickly to build digital and data teams to understand predictive insights better and react faster to unplanned downtime and other supply chain disruptions. In addition, having the tools in place can make the company more attractive to younger candidates already familiar with current tech tools and help retain the expertise older workers can inject into these new systems.
A few areas that may need a shift in your procurement strategy include having flexible leadership aligned to new procurement processes. In addition, these stakeholders must be curious about AI technologies and willing to test them.
Communication bottlenecks must also be addressed in any organization adopting new processes. This communication must address the specific needs of procurement and MRO teams, including upstream messaging to your supply base to strengthen relationships and minimize risk.
Moving Forward
Companies have long sought a single source of truth for materials data to strategically improve their procurement and operations. Fortunately, purpose-built solutions are now available, and leading manufacturers are quickly embracing the capabilities they provide. For example, intelligent systems can quickly help build supplier contracts to lower business risk and enable more robust compliance. This can ease the process of predictive risk models and enable better decision-making for material purchases.
These strategic areas are at the forefront of the supply chain for procurement leaders. In tackling these strategies throughout the procurement process, companies can lift their prospects for new digital transformation and more substantial revenue growth in 2023.
Paul Noble,
Founder & CEO of Verusen