Key points
Supply chains this year have been stretched to their limits. The pandemic, along with the disruption it has brought, has forced 85% of manufacturers to review how their supply chains deal with circumstances that can change dramatically, on a week by week basis.
Consumer demand, government guidance and more recently circuit breaker lockdowns can arrive seemingly overnight – alongside COVID outbreaks which can quickly shut down a factory floor.
To deal with the rapid pace of change, manufacturers are having to move faster and with more agility than they ever have before. Where once changes took weeks or months, now they are needed in days and even hours.
Manufacturers, therefore, need to make sure that all of their business functions can adapt at this rapid speed. Nowhere is this more important than with procurement. Inefficient procurement processes force the whole business to operate slowly and risk it not being able to react to changes as fast as is needed.
Sadly though procurement has the reputation of holding back positive relationships between manufacturers and suppliers when really it is at the heart of powering collaboration and partnerships between the two. To gain the speed and agility that is needed then, businesses need to address the common problems that are negatively impacting the procurement process.
Dealing with unexpected demand
The first area manufacturers should look at is that of complexity in the supply chain. Often supply chains are most efficient with a limited number of moving parts when all different variables are known. However, the endpoint of supply chains, which is demand, has fluctuated greatly over the last nine months, and many manufacturers have been placed on the back-foot.
One example of how manufacturers have been impacted was seen during the first lockdown. During March and April, non-essential goods were suddenly left sitting on shelves, meaning manufacturers of these types of goods had to quickly shift their production or be left with a huge surplus of stock.
Equally, those manufacturers producing items such as toilet paper faced demand that doubled overnight. While stock did always remain high, the panic buying that we saw meant that sales moved quicker than anyone expected.
To deal with this change in demand when new restrictions were confirmed in Wales this September, toilet paper manufacturer Wepa was forced to increase its production by 23 percent. Any hold-ups or issues with procurement during this time would have risked the chances of a manufacturer being able to react quickly enough.
While these were unexpected events at the time, now unpredictability has become the new normal for manufacturing. To deal with this, businesses need to turn to the latest digital solutions like Enterprise Resource Planning (ERP) which can quickly forecast the requirement of new materials, and have them ordered and approved in real-time. With technology like ERP systems in place, businesses can better manage their procurement process and quickly adapt to rapid changes in demand.
Disruption to Supply
Managing demand though is not the only area where ERP systems can help. The supply of raw materials is equally important. The pandemic has shown businesses, across all industries, that supply chains are much more fragile than originally thought. Alongside interruptions due to business closure or lockdowns, COVID outbreaks can quickly render suppliers incapable of fulfilling orders.
To manage supply chain interruptions, manufacturers have to have agile processes which can quickly identify and approve new methods of material fulfilment. In the case that a manufacturer only has a single supplier for a specific material, onboarding and setting up a new supplier, multiple suppliers or even sending out a tender to help out is key.
ERP systems can help here again. Processes can be easily sped up which not only increases agility but also gives team members time back to manage other issues too. When dealing with fast-moving changes in supplier capability, this speed of action makes all the difference.
Avoiding dark purchasing
Supply and demand issues though are not the only ones that ERP systems can help with. When the current procurement system is incapable of keeping up, a business will simply go outside their standard approvals, which then leads to dark purchasing.
Dark purchasing is a short term game though. It is driven by two factors: decisions outside of non-standardised processes, and human error. For those who were not able to meet orders within their usual systems, it allows them to fulfil supply chain needs. However, this is guaranteed to cause future disruption.
Dark purchased orders, which are often incomplete or entirely missing from a system, are much more difficult to track and monitor. This means keeping track of the order, making the right payments, even making sure the order has been fulfilled correctly, all become very difficult.
These orders also have minimal traceability, meaning the full details may not be referenceable when a business decides to look back for a quarterly, or yearly breakdown. It is therefore important to avoid dark purchasing at all costs, while still being able to operate at the speed that is needed.
Why integrating ERP help can solve these issues
Avoiding challenges such as dark purchasing is made easier by having an integrated procurement system in place. Using a suitable business solution, such as an ERP system, which brings all aspects of the supply chain together, means businesses can have a framework which allows quick changes to be made inside standard approval processes.
This greatly reduces the need for practices like dark purchasing. Instead, orders can be made and approved quickly, with less error, alongside instant traceability.
Adding to the flexibility, orders can be entered and approved from the office, personal desktop or even a smartphone. Once placed they can then be referenced back in three weeks, three months or even three years. Using an ERP system then means practices such as dark purchasing are easy to avoid, and also easy to spot.
The level of personalisation that these systems offer is essential for manufacturers to deal with the uncertainty of the pandemic. It is next to impossible to predict what challenges await manufacturers at the beginning of 2021.
This is why the business as a whole must be completely in sync, ready to move swiftly and together. Procurement is a key part of this process. Through integration, procurement can move on from being a siloed business function. Instead, it can work hand in hand with other areas of the supply chain, becoming a key element in strategic decision making.
Manufacturers have had a number of challenges thrown at them this year, and it appears likely that these are set to continue. Those that are successful will have procurement processes that allow for flexibility, speed, control and traceability.
These are essential in managing supply chain disruption. Businesses that are instead held back by their procurement processes, however, will find it extremely difficult to overcome the challenges the future will bring.
