The whole world is a ‘supply store’ for direct materials companies—wood pulp comes from Canada, coffee from Brazil, rubber from Thailand, polyethylene from China and corn from the US. While there are definite advantages to having a sourcing supply chain stretching around the globe, the flip side is increased complexity and higher potential for risk and disruptions.
How to choose the right E-sourcing solution that works for your direct materials business
A strategic guide to E-sourcing software to make your sourcing supply chain error-free and disruption-proof
The whole world is a ‘supply store’ for direct materials companies—wood pulp comes from Canada, coffee from Brazil, rubber from Thailand, polyethylene from China and corn from the US. While there are definite advantages to having a sourcing supply chain stretching around the globe, the flip side is increased complexity and higher potential for risk and disruptions. A world-class E-sourcing solution that simplifies the complexities and mitigates the risks is necessary for companies that want to make their sourcing disruption-proof and resilient.
The challenges in managing a distributed, decentralized and global supply chain were thrown into sharp focus when the Covid-19 crisis started in 2020. Every part of the supply chain was hit. While there is greater focus on the consumer-impacting downstream supply chain, upstream sourcing supply chain is equally, if not even more, important.
The health and strength of an organization’s entire supply chain is established right at the first link, which is sourcing. An oversight at the raw material sourcing stage, like inaccurate lead times, incorrect delivery dates, or wrong prices have a cascading effect down the rest of the supply chain. The pandemic has made clear that sourcing needs to be disruption-proof and organizations need to invest in a strategic sourcing solution to plan for their raw material needs and track it from supplier to warehouse and beyond with pinpoint precision.
The reasons for complexity are manifold. Companies today typically deal with multiple suppliers, who are in different geographies. It is necessary to float tenders regularly to ensure the organization is getting the best quality materials at the best price. Different countries have different rules and regulations that come into play. Further, there are multiple transport and logistics operators and processes involved. Then, there’s the issue of timing and managing supplies. Getting the right materials, in the right volumes at the right time to the right hubs requires precise planning.
Traditionally, sourcing has been managed through a mix of emails, phone calls, spreadsheets and even faxes. Even if a company has a strong ERP system in place, fragmented legacy systems leads to the feeding in of wrong data into the ERP software leading to glitches, leaks and problems.
Implementing a well-designed E-sourcing system is the answer.
Factors to be considered while choosing an E-sourcing solution for your direct materials business:
1. An end-to-end, source-to-pay solution
A platform that requires sourcing teams to exit and use emails or other forms of communication to handle some parts of sourcing is an ineffective one. An end-to-end E-sourcing solution through which sourcing and procurement teams can run tender processes, award contracts, follow up with suppliers and initiate collaborations, among other tasks, is what will help a business streamline sourcing and make it efficient and transparent.
A source-to-pay system allows companies to run and manage supplier bidding entirely on the platform. Today, it is important to have flexibility like awarding contracts by line items. Also, buying and selling raw materials through the commodity trading route makes the process more efficient and is a necessity. The E-sourcing software you choose should enable such activities.
Having a system that drives end-to-end sourcing also ensures transparency as all communication to and from a supplier is recorded in the platform. This ensures greater trust and accountability. A single platform also ensures the sourcing team has complete visibility over the procurement of all materials from all suppliers.
2. Built for direct materials businesses
Businesses that need to deal with direct materials have unique requirements, which could range from need for specialized logistics to shorter storage time. A generic sourcing platform will not be able to reflect and cater to these differences, while a digital sourcing software built for direct materials businesses will.
As has been mentioned earlier, the ability to award contracts by line item or to procure raw materials through commodity markets is absolutely necessary. Further, Purchase Order Collaboration is mission critical in direct materials business. Managing POs manually or through software that does only some part of the required tasks makes the process inefficient. When choosing an E-sourcing solution, look for features like automated tracking and reporting of open POs, automated and streamlined PO acknowledgement process, enhanced visibility into inbound shipments with ASNs, automated matching of invoices, POs and receipts, and ability to match and compare invoice and PO by line item.
3. Seamless integration with ERP
If the E-sourcing software does not connect and communicate with the ERP that runs the other parts of a company’s organization, unnecessary complexities are being introduced. Manual intervention will increase the chances of errors occurring and will definitely add to the time taken to complete tasks and get actual work done. The E-sourcing portal and the ERP needs to communicate precisely so that data flows seamlessly between teams and functions.
4. Easy supplier management
Suppliers and vendors are also important customers of companies and ensuring a high quality and a happy supplier base has a direct impact on business performance. Here again a strong E-sourcing platform comes in handy. A good software can make supplier onboarding quick and intuitive, helping build trust.
A world-class E-sourcing solution also allows companies to track supplier performance against key operational metrics. It can capture, store and share quality inspection results, plus communicate where suppliers need to improve, so quick corrective action can be taken. Most importantly, a self-service dashboard within the E-sourcing software for suppliers allows them to track orders, invoices, and payments, making for a better experience and reducing the workload of the sourcing team.
5. Enable collaboration and cost reduction
Supplier Collaboration is an important tool to bring down costs, improve processes and bring in innovation. Using suppliers’ expertise and specialised know-how is a win. A well-designed E-sourcing platform enables two-way communication between the company and its key suppliers enabling better collaboration across the supplier network.
Automated, error-free, quick and transparent processes from contract management to clearing of invoices and payments ensures lower costs. Beyond this, a good E-sourcing software will also have features like Spend Analysis and the ability to compare bids based on value and other parameters. This directly helps control costs, while ensuring quality is not compromised.
A robust E-sourcing solution can become a potent tool for businesses to dramatically improve efficiencies, control costs, safeguard quality and strengthen supplier relationships. It is an investment that will pay rich dividends in years to come.
A robust E-sourcing solution can become a potent tool for businesses to dramatically improve efficiencies, control costs, safeguard quality and strengthen supplier relationships. It is an investment that will pay rich dividends in years to come.
Other resources
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Manufacturing businesses should emphasize on achieving “first mile” readiness. It is the place where businesses can source, consolidate and produce raw materials before sending them to the wholesalers.
Traditionally, there were ERP’s, a bunch of Planning, Procure to Pay, Logistics, Sourcing and Procurement, Contracting and Inventory systems, and many ingrown, allied processes that were either part of the ERP configuration or manual excel based home-grown methods.