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Enablers of Purchasing and Supply Chain Management

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In our previous article, we discussed the five basic areas in any supply chain in which companies must make individual and collective decisions regarding their actions. These five essential areas are;

  • Production
  • Inventory
  • Location
  • Transportation
  • Information

Now that we are more familiar with the terminology used in supply chain management and purchasing, we must acknowledge that greatness in these fields does not just occur. A dedication to the four enablers of purchasing and supply chain excellence is what distinguishes companies that realize genuine benefits from those that do not. These enablers offer the assistance necessary for the creation of progressive methods and initiatives. Keep reading to know more about these four areas in detail.

  • Capable Human Resources

The strength of a company’s workforce is essential to its success. Of course, this applies to purchasing. Professionals in the purchasing and supply chain industries today need different knowledge and abilities than they did a few years ago. The top five knowledge areas for prospective buyers, according to a recent study, were;

  • Supplier relationship management
  • Total cost analysis
  • Purchasing strategies
  • Supplier analysis
  • Competitive market analysis. 

In order to coordinate operations and material flows along the supply chain, effective supply chain management necessitates close cooperation with suppliers as well as internal coordination with engineers, procurement, logistics, customers, and marketing. The foundation of purchasing strategy is these connections with important suppliers. Strong supplier relationships frequently force buyers to conduct their businesses more entrepreneurially. 

Cost-management expertise is becoming increasingly crucial. Cost management becomes crucial to longer-term success when it is impossible to raise rates for customers. For instance, purchasing professionals at a significant American chemical company assess important supply decisions using total cost models with information from suppliers and other sources. Another business asks its staff to pinpoint the upstream cost factors past the immediate suppliers where improvements might be made. The management of the supply chain and purchasing processes now both include cost control. These total cost studies are then combined with market conditions and supplier capability analyses to produce an overall purchasing strategy

It will take a good human resources strategy, including the internal development of high-potential workers, talent acquisition from other functional groups or businesses, and hiring bright college graduates, to gain access to the necessary capabilities. Making sure that qualified participants are accessible to assist with purchasing and supply chain requirements is the main goal for which this occurs. 

  • Proper Organizational Design

In order to accomplish organizational goals and objectives, including supply chain goals, organizational design refers to the process of evaluating and choosing the structure and formal system of communication, labour division, coordination, control, authority, and responsibility. Formal charts show the formal structure of an organization, but they can give an incomplete perspective. The organizational structure consists of much more than just a chart’s worth of lines and boxes.

Teams will continue to play a crucial role in supply chain design. Managers should only occasionally use teams, though. Even fewer studies have objectively evaluated the effect of teaming on corporate performance and demonstrated a clear link between teaming and improved performance. Increased effectiveness is not a guarantee when organizational work teams are used to support purchasing and supply chain goals.

  • Real-Time and Shared Information Technology Capabilities 

The development of information technology (IT) systems and software that support an end-to-end supply chain, as well as identifying technologies like radio frequency identification (RFID), have accelerated in the twenty-first century. The supply chain participants may now work together more effectively thanks to these technologies. E-purchasing suites, which have grown in popularity with businesses, are among the software packages that buyers are becoming more interested in. Supply chain planning and execution are the two main supply chain applications used in supply chain collaboration involving purchasing. With planning software, you may increase forecast accuracy, schedule production more efficiently, spend less on working capital, complete projects faster, save money on transportation, and provide better customer service. To make sure that clients receive the correct products at the proper location, time, and cost, execution software assists in obtaining materials and managing physical flows from suppliers through downstream distribution.

Supply chain systems should gather and share information across functional groups and organizational boundaries on a real-time or near-real-time basis, regardless of the type of information technology platform or software utilized. This may entail employing global positioning systems (GPS) to relay the whereabouts of transportation vehicles, Internet-based systems to communicate the material requirements to suppliers, or barcode technology to track the promptness of supplier deliveries. More applications are utilizing RFID tags to gather real-time information about product and material flow across the supply chain. 

It is not difficult to identify examples of the connection between information technology and supply chain excellence. Since its foundation in 1979, TaylorMade Adidas has steered the technical revolution in the golf business. To streamline its whole supply chain operations, TaylorMade uses software from i2 for supply chain planning and execution. Demand planning is the first step, which is necessary to control TaylorMade’s robust but erratic product sales. For instance, demand for a new line of titanium drivers surged significantly more than the company had anticipated when a competitor lowered its costs. Multiple providers were consequently needed to supply the increased demand at a higher cost. The new technology allows for better demand visibility, which the purchasing department can therefore quickly observe, allowing for a more integrated approach to sourcing and less inventory

Sales staff now gather demand from retail consumers on wireless devices and communicate it to the warehouse. A second wireless communication is sent to the TaylorMade facility if there is no stock at the warehouse. To complete the order, you might need to take purchasing action to get the required components. Sharing demand predictions with suppliers has given every link in the supply chain visibility into demand, improving planning on all fronts. Now that suppliers can plan ahead, TaylorMade receives shipments of the goods it needs to meet client requirements with less inventory.

  • Right Measures and Measurement Systems 

The fourth pillar supporting excellence in supply chain management and purchasing is the use of appropriate metrics and measurement tools. Unfortunately, there are numerous obstacles in the way of better performance when it comes to measuring. Among them are:

  • An excessive number of metrics
  • Disagreement regarding the proper measurements
  • Metrics that are always changing
  • Outdated data.

The organization must be aware of what it wants to measure, have a procedure in place to measure it, and have access to the appropriate data in order to get over these obstacles. Taking action in response to the measurement data is the next phase. Finally, like with any planning system, the targets are updated to take into account the market conditions, rivalry, and the organization’s evolving ambitions. 

What makes measurement so crucial? First, factual rather than subjective decision-making is supported by objective measurement. Second, measuring is a great approach to drive continuous development and change while also communicating requirements to other supply chain participants. Suppliers are likely to perform better if they are aware that their performance is being watched. Many businesses utilize the measuring system to reward exceptional performance as well as to enhance future supplier performance. By connecting relevant metrics to desired business goals, measurement also communicates what matters. Determining whether new initiatives are yielding the anticipated results is another function of the measurement process. The ideal instrument for managing purchasing and supply chain activities and procedures may be measurement, to sum up.

Although there isn’t a single best way to measure supply chain performance and there isn’t a definitive or prescriptive set of measures for it, we do know that effective measures and measurement systems meet a certain set of requirements. These standards offer a set of guidelines for evaluating supply chain measurement techniques.

The search for innovative methods and tactics that start to define excellence in purchasing and supply chain management is supported by these four enablers. If businesses choose to disregard these areas, they will find that they are less able than their rivals to create innovative practices and methodologies. Learn about these crucial areas in detail by enrolling on our Procurement & Supply Chain Management course.

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