Manufacturing is sometimes thought of as an industry that makes things instead of buys things. However, even a simple manufacturing process can involve numerous spare parts, raw materials, and specialized components—all of which need to be purchased. Procurement is often overlooked, but it is a crucial part of ensuring the success of your manufacturing business.
What is Procurement?
Procurement refers to the range of activities undertaken by a business to obtain goods or services. These activities can include gathering inventory requirements, sourcing suppliers, issuing purchase orders, and making payments. In general, the idea of procurement is to obtain the most cost-effective supplies to support successful business operations.
Why is Procurement Important?
Manufacturing companies can spend up to 70 percent of their total expenses on materials and services. The quality, price, and delivery lead time of these materials and services directly influence the quality, price, and delivery lead time of the end product that is manufactured. Therefore, it is essential to have an effective procurement strategy in place.
Procurement Affects the Bottom Line
Because procurement takes up such a large portion of the business budget, the cost of the items procured has a direct impact on the profitability of the operation. Saving a small amount on a component may seem insignificant, but it can add up to thousands of dollars on a bulk order. Procurement can help you to seek out the best deals available.
Be careful, though. Some items may cost less in price but come with slower delivery times that end up costing your business in manufacturing delays. This is why procurement has to be viewed as an end-to-end strategy. By looking at the big picture, you can have a better idea of how to maximize the cost revenue ratio of your business.
Procurement Smooths Your Supply Chain
Supplier and inventory management are two key factors of effective procurement. Part of procurement is identifying reliable and responsive suppliers and building mutually-beneficial long-term relationships with them. This will not only open the door to reduced prices but will also ensure smoother communication and more future collaboration.
Meanwhile, staying on top of your critical inventory means that you are assured of supply whenever you need it. Manufacturing orders can come in overnight. Procurement manages your inventory to eliminate disruptions to your operations. It means you do not have to contact suppliers at the last minute or pay a premium for rushed orders.
Procurement Drives Innovation
You want your manufacturing operation to be able to scale as your business expands. Your existing suppliers may be able to cope with your current needs but it always pays to look to the future. Procurement can help you to identify alternative vendors who can cater to your growing business. Besides, it is always safer to have a few backups in case of emergencies.
As technology develops rapidly, procurement is also becoming more strategic. Procurement can help you to explore new ways to improve your supply chain that were not previously possible. It can enable you to connect with innovative suppliers who have more agile processes or gain access to proprietary materials that will make your products stand out.
Procurement Impacts Your Reputation
The quality of the components that make up your products reflects directly on your manufacturing business. A faulty or inferior part in your end product can negatively affect your reputation. Similarly, your business will benefit if it is known for using only good-quality components. Procurement can ensure that cost is measured against quality.
With modern consumers becoming increasingly concerned with corporate social responsibility, procurement can also make or break your brand. If you source items from places with questionable environmental and labor standards, it can reflect very badly on your business. By choosing the right suppliers, you can steer clear of any controversial issues.
How Technology Helps Procurement
With so much encompassed in the world of procurement, it is a good thing that technology has stepped in to simplify the process. Modern supply chains are becoming increasingly intelligent and procurement software for manufacturers can now help businesses take care of the most tedious and stressful procurement tasks.
Business owners and managers can manage suppliers, procured supplies, prices, and manufacturing plans from one transparent dashboard. You can import suppliers from a spreadsheet and bulk update prices when they change. Manufacturing floor managers can book materials and orders can be pre-filled and sent to purchasing managers to action.
Clearly displayed material availability and supply delivery lead times enable businesses to plan production in advance. When supplies arrive, the items are automatically taken into stock and easily allocated to manufacturing projects. The software can even forecast material procurement needs based on sales forecasts.
Procurement has an important role to play in the smooth operation of a manufacturing business. Big companies with lots of cash flow may be able to ignore slacks and bottlenecks in their supply chain but small businesses must leverage every tool that they can. Procurement software can enable small manufacturers to be more competitive and profitable.