Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade (Part 1)

Leveraging technology to manage supplier risks
April 10, 2012
Manufacturing and Direct Materials Sourcing: A Planning Guide for the Next Decade (Part 2)
April 26, 2012
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The challenges and scale of the opportunity posed for working in procurement within manufacturing have grown dramatically in the past few years. But technology adoption hasn’t kept up. At best, we’ve seen transformations in the function leveraging certain technologies (e.g., reverse auctions as process crutch to implement five-step or seven-step strategic sourcing processes on a mandatory basis). But looking forward, we’re about to enter into an environment where new approaches and technologies enable complete transformation and the role and definition around how leading manufacturers depend on procurement and their extended supply chain to protect and expand their business.

This post, a five part series will provide a brief overview on each of the five key tactics and strategies procurement organizations are beginning to deploy, often in tandem, which will form the basis of strategies in the next decade. These are,

1. Enhanced Forecasting, Planning and Category Strategies – Commodities, Demand and Beyond

2. Smarter Negotiation Tactics – The Reverse Auction Quadrant Gets Smaller

3. Total Cost Visibility – Total Cost Modeling at the Center of Buying and Supply Chain Activity

4. Supplier Management – Risk, Development and Performance Management

5. Thinking Globally, Acting Locally – The Post-LCCS Global Buying Environment

Enhanced Forecasting, Planning and Category Strategies – Commodities, Demand and Beyond: Demand forecasting, sales and operations planning (S&OP) and related operations-focused planning areas are only a part of the integrated procurement and supply chain finance effort. Commodity forecasting and planning and true visibility into savings tracking and budgeting impacts often form the nucleus of these newer efforts. To facilitate better planning and forecasting, organizations are more frequently bringing in expert analysts to provide commodity perspectives on forward markets. Some are even hiring internally for commodity analyst/trader roles in larger spend areas.

There is a greater prevalence of statistical modeling for demand planning and forecasting and organizations doing more to correlate factors on the supply side driving price, volatility, demand and other variables. Correlations are becoming, in certain cases, more important than even powerful snapshot views into existing spending and cost trending patterns.

What do forecasts and correlations look like? Spend Matters and MetalMiner, consider 26 different economic variables that impact the key commodities as part of their forecasting efforts for metals. These include global GDP numbers, PMI/ISM numbers, consumer spending, automotive numbers, residential construction and commercial construction. For certain commodities, additional variables are tracked which are believed to correlate to future prices. For steel, these areas include steel production, capacity utilization as well as iron ore, coking coal and scrap market prices.

 

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