In the world of manufacturing, a small incorrect or missing piece can turn into a big problem. At best, this can mean lost production time, at worst, it can mean faulty products. Despite the crucial role that the right products play, many manufacturers still live in the world of spreadsheets and email when it comes to their sourcing practices, both for vendor and internal communications. This creates inefficiencies — ranging from lost man hours to product issues to lost vendor savings — that drain money and waste time.
How can manufacturers flip this cycle to harness procurement’s potential business impact? The answer is in an eSourcing solution that helps teams make smarter decisions to drive savings and create stronger relationships. To this point, a new research paper from Harvard Business Review (HBR) in partnership with Scout RFP found that global insulation, roofing, and composite manufacturer Owens Corning was able to save millions of dollars through strategic eSourcing practices in 2016, which helped the company achieve “record levels of adjusted EBIT and free cash flow.”
Owens Corning isn’t the only manufacturer who has reported record results from focused procurement practices. As Australia-based manufacturer Bradken looked to identify areas to improve business outcomes, beyond relying on increased sales, procurement quickly came to the forefront of the conversation. “Sourcing is something that’s almost entirely within our control,” Bradken CEO Paul Zuckerman notes in the HBR research paper. “Not only are we delivering a prize in the form of substantial added value to the business, but we can chase that prize at our own pace. Inflection points don’t usually look inspirational at first glance, but leveraging the familiar is what we did to reinvent ourselves and it paid off.”
You too can leverage an eSourcing solution for improved procurement processes and bigger business impact. Here’s how:
Inefficient procurement processes cost businesses an estimated 32.2 million man hours a year. Trying to imagine how many dollars that translates to is enough to make anyone’s head spin. Strategic eSourcing can combat this loss through a focus not only on driving savings, but on driving savings faster through a more efficient approach to the entire process. These efficiencies can be enabled by a collaboration-focused solution that bridges the gap between stakeholders and suppliers, and automates previously manual processes like data and requirement input. The HBR research paper goes on to point out that “enterprises that implement strategic sourcing methods and processes can see returns of five to ten times their original investment. High-performing sourcing and procurement functions save $82 for every $8 in cost to procure, according to Accenture — effectively saving more than 10 times the cost of the procurement function.”
Incorporating Enterprise Perspective
In addition to creating efficiencies within a business’s procurement processes, strategic eSourcing can help make decisions that benefit the enterprise as a whole, rather than just one department or team. As procurement gets a deeper view into each sourcing project’s needs and requirements, they are primed to then encourage collaboration with similar sourcing projects. The result? Better utilized resources and better business outcomes.
“If we see one function undertaking a project, and a close parallel somewhere else in the company, we’re able to connect those dots, so that those stakeholders have visibility into what’s going on,” Levi Strauss & Co.’s VP of global strategic sourcing Dean Edwards points out in the research paper. This enterprise-wide view across the supply base is imperative to reaching procurement’s potential impact.
Encouraging Constructive Competition
For manufacturing businesses to stay at the top in the market, they must be able to generate vendor deals that meet all requirements at the most competitive price. Oftentimes, however, business-vendor relationships become stale. An eSourcing solution enables the procurement team to combat this by offering an objective point of view in vendor decisions — allowing the business to put vendor offerings side-by-side in order to establish more impactful vendor relationships and deals.
One way procurement teams can put this constructive competition into motion with eSourcing technology is through real-time reverse auctioning — where vendors compete to obtain business through optimized pricing and terms. In fact, according to the HBR research paper, financial software leader Intuit has seen millions of dollars in hard savings from reverse auctioning.
Procurement is manufacturing’s not-so-secret weapon — so why aren’t more companies prioritizing it? Whether you’re measuring in the currency of time or dollars, the savings from optimized procurement practices are nothing to scoff at. Take Bradken, for example: According to the research paper, the manufacturing company “is now generating impressive returns through its sourcing-improvement efforts, which have been well received by investors; Zuckerman says the company is realizing between AUD5 and AUD10 for every AUD1 that it’s spent on sourcing.” By practicing strategic sourcing with the help of an eSourcing solution, you too can quickly generate bottom line impact and transform your business without even increasing sales.
Andrew Durlak is Co-Founder and VP of Operations at Scout RFP.