Agile Procurement: Driving Revenue Growth in the Manufacturing Industry
It’s never been more apparent that manufacturing plays a critical role in economies and industries across the globe. Simultaneously, uncertainty fueled by shifts in customer behavior, supply chain networks, and the overall economic landscape is making it harder for manufacturers to predict future performance.
Because of this, resilience has become top of mind for many business leaders. For manufacturing companies in particular, agile procurement is crucial in driving resilience, staying competitive, and increasing revenue. In a 2022 survey by McKinsey & Company, 50% of industrial company executives listed supply chain resilience as a strategic priority. In this article, we'll delve into the concept of procurement agility, its benefits, and how it can be achieved.
What is Procurement Agility?
Agile procurement is the ability to quickly and efficiently adapt to changes in market conditions, customer requirements, and internal business needs. It involves having the flexibility to make rapid procurement decisions, manage suppliers more effectively, and ensure timely delivery of goods and services. Procurement agility is not just about speed; it also requires informed decisions based on market intelligence and supplier performance data.
50%
of industrial company executives listed supply chain resilience as a strategic priority
— McKinsey & Company
Agile Procurement Benefits in the Manufacturing Industry
Increased Manufacturing Revenue
Agile procurement can help manufacturing companies increase revenue by enabling them to respond quickly to global events or changes in customer demand. In a 2022 Deloitte analysis of manufacturing supply chain data, 59% of manufacturers’ supply chains were recently disrupted by shipping delays. Additionally, 46% reported concerns about rising shipping costs.
By sourcing from suppliers who offer faster and more cost-effective shipping, manufacturers can gain a competitive advantage and capture new market opportunities. Procurement agility can also improve visibility into order volume and supplier overlap. This can help companies negotiate better deals with preferred suppliers, resulting in additional cost savings and increased profitability.
Improved Supply Chain Resilience
Concentrations in highly specialized manufacturing exports, such as semiconductors from Taiwan, can lead to supply chain bottlenecks. According to research by the McKinsey Global Institute (MGI), “research has found 180 products with a value of $134 billion in 2018…are exported almost exclusively by a single country.”
To mitigate disruptions, experts recommend that companies prioritize supply chain resilience. In doing so, manufacturers can quickly adapt to unexpected disruptions such as natural disasters, geopolitical events, and supplier bankruptcies. This can help minimize supply chain disruptions, reduce inventory costs, and ensure business continuity.
Better Supplier Management for Manufacturers
Procurement agility can also improve supplier management by providing real-time visibility into supplier performance and risk. Supplier defaults are a frequent challenge faced by manufacturers. By having access to supplier performance data, manufacturing companies can make more informed decisions on supplier selection, negotiate better contracts, and manage supplier relationships more effectively.
How to Achieve Procurement Agility in Manufacturing
Digitization
According to research from the MGI, “over the course of a decade, the average company can expect to lose nearly half of one year’s profits from supply chain disruptions.” One way to combat this, says the MGI, is for companies to embrace technologies that enhance productivity in manufacturing.
Digitalization is an important key to achieving agile procurement. A survey by Adelante SCM, however, revealed that over 67% of supply chain executives still rely on Excel as their primary supply chain management tool. By leveraging technology such as artificial intelligence, machine learning, and data analytics, companies can gain real-time visibility into their procurement processes, identify bottlenecks, and make informed decisions based on market intelligence and supplier performance data.
Collaboration
Conducting effective procurement analysis requires consolidating data across departments and functions. Gathering data is critical for understanding spending trends and identifying opportunities to save money.
However, this often involves navigating organizational complexity to source necessary metrics. By breaking down silos and collaborating more effectively, companies can improve communication, streamline processes, and achieve better outcomes.
Flexible Contracts
Flexible contracts that allow for changes in scope, volume, and delivery schedules can help companies adapt to changing market conditions and customer requirements. By having the ability to renegotiate contracts quickly, companies can respond more rapidly to changes in demand and avoid costly penalties.
Conclusion
Procurement agility is becoming increasingly important in today's fast-paced and volatile business environment. Manufacturers that prioritize procurement agility by leveraging digitization, collaboration, and flexible contracts can increase revenue, better manage supplier relationships, and ultimately stay competitive in the market.
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