5 Steps to Use Strategic Procurement for Optimizing Manufacturing Operations Management


Jul 6, 2022 | Procurement in manufacturing industries



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Stawan

Jul 6, 20224 min read


Procurement plays a critical role in manufacturing operations management by ensuring the availability of necessary materials, supplies and equipment in a timely and cost-effective manner. A robust procurement system, with features like automated order tracking and supplier performance monitoring, can streamline the procurement process and help organizations reduce costs.


Procurement is a critical component of manufacturing operations management, and it is important for operations managers to understand the impact of procurement on their organization's manufacturing efficiency and costs. By taking a strategic approach to procurement and automating as much of the process as possible, organizations can ensure that their operations run smoothly and cost-effectively. 

Understanding the Impact of Procurement on Manufacturing Operations Management 

Procurement is the process of purchasing goods and services from external suppliers, and it is an important part of manufacturing operations management. Quality products and materials must be purchased in order for a manufacturing organization to produce goods that meet customer expectations. Poorly sourced or managed materials can lead to defects, delays, and additional costs. 

The procurement process also has a direct impact on the costs associated with manufacturing operations. Poorly negotiated contracts or lack of supplier competition can result in higher prices for materials, resulting in higher overall production costs. Additionally, inefficient procurement processes can lead to delays in receiving materials or supplies, which can also increase costs and disrupt operations. 

It is important for manufacturing organizations to have a well-defined procurement process in place to ensure that materials are sourced and purchased in a timely and cost-effective manner. This includes having a clear understanding of the organization's needs, researching potential suppliers, and negotiating contracts that are beneficial to both parties. Additionally, having a system in place to track and monitor procurement activities can help to ensure that materials are delivered on time and that costs are kept to a minimum. 

Exploring the Benefits of a Strategic Procurement Approach 

Here are a few examples to illustrate the role of procurement in manufacturing operations management: 

  • Identifying and evaluating potential suppliers: Procurement teams are responsible for researching and evaluating suppliers to ensure they meet the required standards for quality, delivery time, and price. For example, if a manufacturer produces car parts, procurement would evaluate suppliers of steel to ensure they are able to provide the necessary quality and quantities at a competitive price. FactWise simplifies supplier evaluation via our smart supplier selection and rating algorithm, and enables supplier discovery for buyers across industries. 
  • Negotiating prices, delivery schedules, and payment terms: Procurement negotiates the terms of the purchase with suppliers. For example, procurement may negotiate longer payment terms in exchange for a lower price, or a more favorable delivery schedule to ensure materials are delivered just in time for production. FactWise empowers procurement teams with decision intelligence to optimize direct spend along various parameters – our holistic supplier performance insights, RfX analytics and historical spend analytics help users make fact-based, data-driven decisions through negotiations and allocations stages.  
  • Monitoring supplier performance: Procurement regularly assesses supplier performance to ensure they are meeting their commitments. For example, procurement may monitor delivery times to ensure they are within the agreed timeframe, or monitor the quality of materials to ensure they meet the required standards. FactWise offers robust real-time supplier performance analytics across key supplier metrics like price, quality, on-time delivery, RfX participation, and more.  
  • Managing inventory levels: Procurement is responsible for ensuring that there is an adequate supply of raw materials and supplies to meet the needs of the manufacturing process. This involves monitoring inventory levels, forecasting future demand, and placing orders to replenish stocks. For example, if the manufacturing process requires 1000 units of a certain material per week, procurement would ensure there is an adequate supply on hand to meet this demand. FactWise empowers organizations to not only track their goods with tremendous accuracy through customizable goods receival and quality checks stages but also analytics to help minimize DIO (Days Inventory Outstanding) and maximize DPO (Days Payable Outstanding) 
  • Minimizing costs: Procurement works to minimize the cost of the materials and supplies used in production. For example, procurement may negotiate better prices by making bulk purchases or may find alternative suppliers that offer a lower cost. With FactWise, teams can reduce direct materials spend by up to 25% across various spend categories and spend volumes.  

These examples demonstrate how procurement plays a critical role in ensuring the smooth operation of the manufacturing process by securing necessary materials at the best possible value and ensuring their timely delivery. 

The Necessity of a Robust Procurement System for Manufacturing Operations 

In order to manage the procurement process effectively, organizations should invest in implementing a robust procurement system. This system should be tailored to the organization's specific needs and should include features such as automated order tracking, automated invoice processing, supplier performance monitoring, and analytics. These features can help organizations better manage their procurement process and ensure that materials are sourced at competitive prices with minimal risk and disruption. 

In addition, a robust procurement system can help organizations reduce costs by streamlining the procurement process and eliminating manual processes. It can also help organizations identify potential savings opportunities and ensure that they are taking advantage of the best deals available. Furthermore, a robust procurement system can help organizations ensure that they are compliant with all applicable regulations and laws, as well as provide visibility into the entire procurement process. 

In conclusion, procurement plays a vital role in manufacturing operations management by ensuring the availability of necessary materials, supplies, and equipment in a timely and cost-effective manner. The procurement function is responsible for identifying and evaluating suppliers, negotiating prices, delivery schedules, and payment terms, monitoring supplier performance, managing inventory levels, and minimizing costs. By performing these tasks, procurement helps ensure the smooth operation of the manufacturing process and supports the overall success of the organization. The procurement function works closely with other departments, such as production, engineering, and finance, to ensure the best possible outcomes for the company – FactWise improves collaboration across teams with smart dashboards and notifications, customizable workflows and user portals, and the highest degree of data integrity across systems. Ultimately, procurement helps to ensure that the manufacturer is able to produce high-quality products at the lowest possible cost, helping to enhance its competitiveness in the market. 

FactWise is an end-to-end cloud-based procurement platform designed specifically for product manufacturers across industries. While incumbent, dominant players in the procurement software market offer complex, unwieldy, expensive solutions with long implementation timelines and additional costs, FactWise delivers a near-instant time to value and significant ROI. It is offered at a fraction of the cost of its competitors with no additional hidden costs and implements instantly with Open APIs so that teams can start using it immediately with their data while our team integrates with their other existing systems within a month. The minimal, intuitive interface does not require trainings and is consistently rated as the easiest to adopt, by global procurement leaders across industries. Smart dashboards and automated, customizable workflows help increase efficiency while a comprehensive suite of dynamic, holistic analytics helps teams unlock savings potential. 


About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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