Using Cloud ERP to mitigate sourcing challenges in procurement
By Paulo De Matos, Chief Product Officer, SYSPRO
Manufacturers continue to face challenges like increased demand, enduring labour shortages and rising direct material costs.
Buying better is also simply not enough and manufacturers will now need to answer the call for sustainability in ethical sourcing and focus on investing in supplier partnerships and innovation by accelerating the adoption of digital and analytics.
Previously procurement strategies were driven by cost-reduction, low-cost sourcing and relied on single-sourced suppliers, with limited risk management. Now manufacturers have had to reset and focus on digitalisation for strategic sourcing to improve operations and ensure profitability.
As industries are working towards rebuilding their supply chains to be more robust, collaborative, and accessible, some procurement strategies are likely to include:
- The diversification of supply chains by collaborating with local suppliers, developing new delivery strategies, and sourcing from multiple vendors
- Improved systems for automated procurement and traceability to ensure ethical sourcing
- Focusing on supplier relationship management strategies
Here’s how manufacturers can use cloud ERP to manage current sourcing challenges and maintain competitive advantage:
- Repositioning the supply chain for strategic sourcing
Manufacturers are now having to balance the trade-offs around cost versus risk. Is it still best to find the cheapest raw materials by sourcing overseas and accept the heightened risk of non-delivery? Reports also show the cost of shipping increased by 600 percent in 2021 and the impacts in shipping delays and bottlenecks are widespread globally.
Manufacturers should consider repositioning their supply bases by shortening their supply chains and consider dual sourcing strategies to mitigate risk.
Through a supply chain portal enabled by a cloud ERP system, manufacturers can obtain increased connectivity and visibility across the supply chain, which allows them to identify alternative sources of supply more easily. With cloud ERP, analytics can be used to improve, classify, and analyse data by supplier and category.
This improves item-level visibility across the organisation, which is crucial not only for cost-cutting opportunities but for managing inventory and ethical sourcing. With technology, manufacturers can accurately monitor suppliers to ensure the right choices are made to meet profitability and resources goals.
- Managing supplier monopolies and rising costs
Supply chain shocks have reduced supply availability and increased raw material prices. Major players stockpile to cover their demand for extended periods, which means competition for already low levels of supply has increased.
Sourcing strategies are affected as suppliers allocate their scarce supply to their strategic partners who are willing to pay the highest margins, which not only affects manufacturers bottom-line but results in lost sales and decreased customer satisfaction.
The cost of energy is also a huge issue, the regional instabilities and the consequential impact on global energy supply has made a significant and long-term impact. Procurement strategies should now ensure profitability by guaranteeing supply security and proactively optimising costs.
To counter crisis-induced margin pressures and increased volatility, analytics enabled by a cloud ERP system can provide a rich source of new insights and opportunities.
For example, in the procurement of selected resources, predictive analytics can be used to integrate information including industry activity, shipping data and economic indicators. Traceability across the whole supply chain helps to improve product compliance and quality. This enables manufacturers to make better informed decisions to maintain competitive advantage and save costs.
- Digitising procurement for collaboration
The rapid adoption of new ways of working that the pandemic necessitated has forced companies to accelerate the shift to digital. SYSPRO research also shows that 70 percent of manufacturing businesses experienced supply chain disruptions and 60 percent of businesses were unable to engage and collaborate with customers and suppliers in real-time.
The shift to digital has become an important enabler of effective collaboration across the procurement function.
Using cloud ERP, manufacturers can manage all supplier and distribution channels in one cohesive system with visibility across the entire network. Companies can create better transparency by working with suppliers to gain information about their next-tier suppliers and their value chains.
A scalable ERP system provides the choice and flexibility to engage on any device or platform. This enables businesses to manage software costs as an operational or capital expense, dependent on their unique business requirements and budget.
An ERP system provides manufacturers the procurement tools to improve collaboration, order accuracy and to streamline order fulfilment processes and performance.
The result of this is improved on-time delivery, a reduction of inventory level costs and enhanced profitability on their journey towards the factory of the future.