The procurement process at manufacturing companies such as consumer products (CP), food and beverage, and industrial can be very complex. It involves the sourcing of hundreds, if not thousands, of commodities and raw material ingredients from many different suppliers worldwide. Budgets, standards-setting, and forecasting need to be completed up to 12-18 months in advance. Often there are several systems in place to manage this process including ERP, MRP, and siloed spreadsheets, making it challenging to track coverage and spending.
Let’s explore 4 common issues in procurement as well as the business benefits of implementing an advanced analytics solution built specifically for managing the procurement process in manufacturing companies.
Issue #1: Managing commodity price risk
Business Challenges
Companies that are procuring commodities, raw materials, energy, or packaging to produce finished goods are exposed to increasingly volatile commodity prices. With market prices constantly changing, it is difficult for buyers to plan and budget, and is impossible to know the future spend for any given commodity. Often procurement groups are required to budget and forecast costs for thousands of items at a time, for months or years in advance. Without a commodity procurement system in place, this is a time consuming, manual process and there is no way to get a comprehensive view of price risk.
The Solution
Manufacturing companies need a system that automates and consolidates procurement data into one central location that allows you to track, monitor, and manage commodity price risk. The solution should integrate market price curves with data from ERP, MRP, accounting, spreadsheets, and other systems to provide accurate forecasting and budgeting capabilities.
Business Benefits
Procurement solution leverages predictive analytics to react to the market faster and gain a competitive advantage. The solution enables business users to view real-time coverage as well as the plan and maintain coverage within corporate governance policies. Users can also create additional insights that address specific questions without the help of IT, leading to better, faster decision making.
Issue #2: Lack of real-time information
Business Challenges
It is difficult for manufacturers to get true visibility into their exposures and risk when data is being stored in multiple systems. Coverage and pricing are usually managed in individual buyers’ spreadsheets and is time-consuming to manually combine the impact of physicals, futures, and FX.
The Solution
Manufacturers need a solution that manages planning, coverage, financial hedges, and risk in a single platform. They need to be able to manage cost models, consolidate exposure, have integrated derivatives and FX modules, and run complex forecasting scenarios.
Business Benefits
Procurement solution allows you to uncover hidden risks, make better, more informed decisions, and promptly take corrective actions. With the ability to run advanced simulations on market changes, coverage, spend, and variance, you can better evaluate how projected changes will affect the bottom line, as well as predict the impact to coverage before taking action.
Issue #3: The “spread out” spreadsheet
Business Challenges
It is widely known that spreadsheets are prone to manual errors and significantly increase operational work, yet most manufacturing firms still use a large number of custom spreadsheets to manage commodity risk and procurement. It can take weeks of effort to consolidate plans, monitor rates, and check for anomalies every time new forecasts come in.
Additionally, spreadsheet usage in procurement creates a lot of risk to the business due to the inevitable lack of data integration, auditability, and process controls. They provide no history of why changes were made and are dependent on the individuals who own the spreadsheets and write their own macros. This makes it very challenging to consolidate information for accurate forecasting and planning while also keeping the company’s data secure.
The Solution
These companies require a solution that maintains data in a structured form with the ability to trace and audit every transaction within the system. Role-based access should be set up as well as alerts, warnings, and exception tracking to highlight discrepancies in real-time. Workflows in the system will help create more process efficiencies and increased collaboration.
Business Benefits
Procurement Analysis solution enables procurement teams to reduce the time spent on operational tasks by up to 50%. This frees up valuable time to focus more on business strategy instead of collecting data and preparing reports. Updated volume forecasts can be accessed on-demand, rather than having to wait for a monthly or quarterly update, enabling teams to take corrective actions immediately.
Issue #4: No standards for cost models
Business Challenges
Manufacturers that have multiple business units within the procurement department usually do not have standardized cost models across buyers. Individual buyers will maintain their own spreadsheets, making it impossible to derive any insights or analysis. Because of the sheer volume and complexity of the models, maintaining and updating them takes a significant amount of time. Even with this manual effort, spreadsheets do not provide any visibility on the secondary cost components that make up total costs. These cost components may have a huge impact on spend and play a key role when negotiating contracts with suppliers.
The Solution
These companies need a flexible cost model framework that makes it easy to standardize and capture information in a structured manner to enable deeper analysis. The system should automatically update the components of each cost model and take minimal effort to maintain.
Business Benefits
Procurement solution allows you to establish organization-wide standards to enable the use of cost models to set budgets, learn individual cost contributors, and make automatic corrections to coverage. It also provides the ability to analyze how individual components of a cost model have performed relative to each other or to the market.
Start making the most profitable business decisions
Today’s modern manufacturing companies are benefiting from advanced analytics software. By integrating all of your procurement data and performing real-time analysis, you can start making the most profitable, fact-based business decisions.
Eka Software Solutions is a global leader in providing digital commodity management solutions, driven by cloud, blockchain, machine learning and analytics.
To talk to Eka experts please write to info@eka1.com