How Procurement Professionals Can Successfully Navigate Trends Impacting Manufacturing
In our most recent blog, we discussed four emerging manufacturing trends and their impacts on procurement professionals. The challenges may be well understood, but what are the solutions for navigating a changing industry? While various solutions exist, we hope to provide a few insightful, experience-based suggestions for success. First, a quick recap of the trends:
- Lean Manufacturing: Lean manufacturing concepts have influenced global manufacturing for the last several decades, streamlining business operations by eliminating activities that do not add value. Procurement professionals often find themselves overwhelmed learning lean terminology and applying new tools, implementing new procurement and inventory management programs, and having their own processes reworked as part of the lean initiatives. But much of the promise of lean depends on procurement constructing and effectively managing a high-performing supply chain.
- Outsourcing: Outsourcing offers the advantages of cost reduction, better asset utilization, and enhanced flexibility…if implemented correctly. And a successful implementation can only happen if the right outsourcing partners are selected. A poor outsourcing choice can be costly. As a result, more and more manufacturers are revisiting their supplier base in search of more dependable partners and procurement is leading the charge.
- On-shoring: Long lead times, convoluted supply chains, and poor product quality have led manufacturers to return to manufacturing numerous products in North America. Many companies that sent production overseas years ago in search of lower labor costs have realized that the total cost of production is actually higher once logistics and quality issues are taken into account. But this positive trend for the US economy creates new challenges for procurement professionals. New supply chains must be established, new suppliers vetted, and shifts in production managed.
- Resource Constraints: A natural by-product of competition is that all involved in manufacturing are expected to get more done but with fewer resources. Resource constraints, defined as “increasing output while decreasing investment per unit of output”, is adding pressure at every level of the manufacturing process which includes the procurement process. So most procurement departments are expected to get more done with less…and this is occurring at the same time that the three trends discussed above are descending on procurement professionals.
SUCCESSFULLY MANAGING THE CHANGING LANDSCAPE
RESCO has considerable experience helping manufactures dealing with each of these trends. We have had the opportunity to see those that have successfully turned these trends to their advantage and noticed that most of the success stories include the following traits.
- Embrace the Change
Rapid change is becoming a constant in the procurement profession. Rather than fighting the inevitable and continuing business as usual, embrace what could be great new opportunities. Despite the challenges imposed by the transition, now is a pivotal time for procurement professionals and their companies…and failure to adapt could be very harmful in the long term. Being resilient in any industry requires flexibility, foresight, and innovation. In many cases, procurement professionals have the chance to lead these transformative changes. By embracing emerging trends now and adapting practices accordingly, procurement can play a very influential role in the process. Conversely, resist change and risk getting marginalized and left behind. If you care where you are going it’s better to drive.
- Become a Student
The days of studying are never over, especially for procurement professionals. In order to stay up-to-date and relevant in this changing landscape, procurement must understand the terminology and tools and the shifting environment in which to use them. Take time to study the forces driving these trends. Know the threats these trends pose for your company and the opportunities they create. Perhaps most important of all is to seek out success stories. Analyzing the success of others may provide unexpected insights into turning their success into you own.
- Clearly Define What to Outsource (and On-Shore) and What Constitutes Success.
Analyze and rank the elements of production where outsourcing (and on-shoring) makes the most sense. Rank your outsourcing opportunities by risk-weighted savings. Set financial savings goals. Having target saving goals available ahead of time will help refine and hone the best outsourcing possibilities.
When searching for outsourcing partners, there are many elements to consider only one of which is unit cost. It’s important that internal costs, targets, and predictions are accurate when seeking a subcontractor to fulfill your needs. Think about what outsourcing means in terms of overhead savings. Are inventory carrying costs reduced? What is the ordering cost if fewer POs are placed? Will you require less warehouse space and be able to reduce management time?
- Seek Out the Right Partners
Following the previous suggestions will do little for you if you are working with the wrong supplier partners. Lean initiatives, outsourcing, and on-shoring require a flexible, knowledgeable supply chain. Ideally, outsourcing partners will allow your company to run in a more efficient and focused way. However, without the right business partners, no amount of internal tweaks will allow new systems to deliver on their promise. The right partners can help you do more, do it better, and do it with less. There is no more important ingredient to success than discovering the right supplier partners for your business.
To make the search easier, set supplier selection criteria. What experience do they have in lean production and outsourcing? Do they have robust quality management systems? Comprehensive document review processes? Thorough performance tracking metrics?
Vet the candidates and select your suppliers. Start with at least double the number you want to select to ensure you find the best fit for your needs. Request proposals and engage potential partners in a collaborative process.
Once outsourcing partners have been narrowed down, be sure to kick the tires before enjoying the ride…make site visit and get to know the team with whom you’ll be working. And before finalizing your decision, request and check references.
Look for our future blog on managing through supplier change.
About the Author
David Copenhaver is President of RESCO Electronics, a Baltimore based manufacturer electronic assemblies and value added reseller of auto ID equipment to original equipment manufacturers. Before joining RESCO in 2003, David wasthe Senior Vice President of Operations and memberof the Board ofDirectors for US Office Products, a publicly traded distributor of office products that is now part of Staples.
Beginning in 1989, David co-owned and managed The Smith-Wilson Co., an Orlando based distributor of office products that was sold to US Office Products in 1996.
David has a Bachelor of Science in Electrical Engineering and a Masters in Business Administration both from the University of Virginia. He is married and lives in Arlington, Virginia with his wife and three sons.