Ensuring Manufacturing Financial Health & Supply Chain Resilience
In today's fast-paced business environment, agility has become a key differentiator for organizations across industries, including manufacturing. According to a survey of manufacturers by Aberdeen Strategy & Research, “the main difference between Top Performers [those who meet time-to-market, quality, and cost targets] and their competitors is their adoption of capabilities and technologies to support business agility.”
With the increasing pressure to respond quickly to market changes and supply chain disruptions, procurement leaders in the manufacturing industry need to focus on building agility in their procurement processes to drive financial health and resilience. This article provides insights and best practices for procurement leaders to enhance agility in their operations, along with supporting research and data.
Agile Procurement: The Need of the Hour
Procurement plays a critical role in the manufacturing industry's financial health, with the potential to impact revenue, cost savings, and supplier relationships. In recent years, manufacturers have faced numerous challenges, including supply chain disruptions, shifting customer demands, and technological advancements. These challenges highlight the need for procurement leaders to prioritize agility in their operations, to respond quickly to market changes and maintain financial health.
Agility in procurement refers to the ability to adapt and respond rapidly to changes in the market or internal business requirements while ensuring operational efficiency. This agility can be achieved through various strategies, such as flexible sourcing, agile contracting, and supplier collaboration.
Agile Procurement Best Practices
Procurement leaders in the manufacturing industry can enhance agility in their operations by adopting the following best practices:
1. Focus on Digital Transformation
Digital transformation can help procurement leaders improve visibility, collaboration, and decision-making across the procurement process. Technologies such as artificial intelligence, machine learning, and blockchain can enable manufacturers to streamline procurement operations, enhance supplier relationships, and reduce costs.
Finding ways to integrate new technology with existing processes can help minimize disruption. According to a 2022 Dimensional Research survey of executives across industries, companies that “invested in integration technology to improve supply chain and organizational agility…drove $3,000,000 or more in additional revenue in 2021.”
2. Invest in Supplier Relationship Management
Nearly half of Dimensional Research survey respondents (48%) suspended or eliminated one or more line of business in 2021, with 60% citing supplier problems as the reason. And in a 2021 McKinsey survey of senior supply chain executives, less than half said they understood the location or key risks of their tier-one suppliers.
Building strong relationships with suppliers can help manufacturers avoid such obstacles by responding more quickly to supplier changes and disruptions. Procurement leaders should focus on collaborating with suppliers, sharing information and risks, and developing long-term partnerships to ensure a reliable supply chain.
3. Embrace Agile Contracting
Traditional contracting processes can be rigid and time-consuming, making it challenging to respond quickly to market changes. Agile contracting strategies such as dynamic contracting, outcome-based contracting, and performance-based contracting can help manufacturers achieve greater flexibility and responsiveness in their procurement operations.
4. Develop a Risk Management Strategy
According to McKinsey & Company, procurement leaders at industrial companies are currently facing 3 major categories of risks: absolute shortage, supplier, and inflation. Having a comprehensive understanding of these risks and crafting strategies to mitigate them will be critical to manufacturers looking to succeed. Procurement leaders should focus on developing risk management strategies to identify and assess risks, develop mitigation plans, and build resilience to potential disruptions.
Conclusion
Agility in procurement has become a critical factor for manufacturers to maintain financial health and resilience in today's rapidly changing global environment. Successful manufacturers recognize the importance of agility in meeting key metrics like time-to-market, quality, cost, and revenue. Manufacturing procurement leaders must adopt a strategic approach to building agility in their operations, focusing on digital transformation, supplier relationship management, agile contracting, and risk management.
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