Top 3 Ways to Optimize Procurement
According to a benchmark report by Riskmethods, 79% of companies revealed that their business was impacted by supply chain disruptions, losing 4% or more of their total revenue in the past 3 years.
When lacking a robust procurement strategy, companies risk losing a large portion of revenue to disruptions. Over 150 supply chain and procurement executives were surveyed to understand the unique challenges they face as well as some insights into the best practices to avoid catastrophic disruptions.
1. Automate the Procurement Process
Companies have difficulty researching and selecting suppliers to procure parts. Many businesses are moving towards automating their procurement process to save time and resources while also reducing human error.
How can automation reduce the risk of external disruptions? Automation software can handle a lot of heavy lifting in terms of data processing. Companies will no longer need to spend time or resources on a data scientist for data entry, updating part records, or sorting component data. This allows procurement managers the time to evaluate the market and determine whether a part is good to buy.
BOM manager automation can give insight into lifecycle risk assessments, inventory levels, and data on compliance and conflict minerals.
2. Optimize Inventory to Avoid Carrying Costs
Inventory carrying costs (ICC) can make or break a product development team. Recent studies showed that actual ICC will range from 18% to 75% of the total market value of the product. The ideal inventory carrying cost is 15-25% of the total inventory value.
Did you know? Poor inventory management can cost up to 75% of the value of the product.
There are several ways to reduce carrying costs:
- Automated inventory tools – These give low-stock or dead stock alerts to give companies a buffer from running out of components
- Getting rid of obsolete inventory – These items not only add to carrying cost, but they introduce the risk of obsolescence. Manufacturers must be aware of product life cycles
- Increasing purchasing frequency – By increasing the frequency of component purchases, ICC is reduced. By forecasting demand, companies can plan and set the quantity of each purchase
3. Source from multiple fabrication and distribution sites
A Foley survey report of 150 top manufacturing executives showed that 61% of businesses do not multi-source their products. This causes risk as relying on a single supplier or distributor can cause a disruption following a natural disaster or geopolitical events. Companies that multi-source from different suppliers and geographical regions create resilience in their procurement process.
Automation can help with a multi-sourcing strategy. By having a complete view of the parts in a BOM, risk can be measured and considered “high risk” if several parts are sourced from the same location or fabrication site. BOM management software can help identify crosses and alternatives, which will then give options for multi-sourcing.