A Strategic Approach to Direct Procurement

Gary M. Barraco
January 11, 2022 | Updated: February 14, 2023

Outsourced manufacturing is the norm today, often involving thousands of suppliers and sites scattered around the globe. Direct procurement departments — those responsible for purchasing materials and components for end products — are tasked with more responsibilities than ever. They must assess suppliers globally and make every effort to acquire materials at the optimal cost to remain competitive and preserve customer loyalty.

Let’s look at the key challenges that companies face in direct procurement and what to look for to help address these challenges.

Top Challenges in Direct Procurement

Increased Complexity
Traditionally, direct procurement has been viewed as tactical. Companies must acquire materials to produce finished goods, but this activity typically provides no real differentiation or competitive advantage. However, manufacturing has grown exponentially more complex. Lead times are now tighter and competitive pressure is much greater. Supply chain movement, supplier assurance, quality and brand value now play a crucial role in direct procurement management. In addition, the direct procurement process requires companies to engage with suppliers when placing orders, sharing forecasts, coordinating logistics, managing inventory risk at any stage and matching purchase orders to shipments, receipts and invoices. These processes can involve dozens of time-sensitive steps and millions of data points to correlate and track each day. With profit margins on the line, the stakes keep getting higher.

Growing Number of Trading Partners
In direct procurement, long-term financial planning is vital for a successful supply chain. Companies must maintain a sustainable sourcing model and ensure that end-product pricing remains competitive to help ensure customer loyalty. Having visibility and control over your trading partners has a direct impact on customer experience and business success. Properly managing and coordinating the extensive data from various trading partners is critical to ensure that the partners are packing, producing and shipping orders correctly and that products will be delivered safely to customers. Collaborative trading partner management helps enable companies to prevent goods shortages and develop long-term customer satisfaction.

Global Trade
Globalization is also an important factor in transforming the processes that organizations have followed to manage procurement. The shift to multi-sourcing and supplier diversification as a risk minimizer requires companies to manage an end-to-end supply chain that operates across borders. The number of touchpoints with trading partners has increased, as has the difficulty of obtaining accurate data in real-time for the efficient flow of goods. Significant amounts of documentation are required to clear customs when shipping goods across borders, and tight coordination between organizations, trading partners and local governments is important. The complexities further escalate with a growing range of trading partners, managing various transactions and the flow of financial assets.

A New Approach for Today’s Complexities

The level of agility required to capture growth opportunities — plus resiliency to manage today’s risks — requires a new way of thinking about direct procurement and its potential. The challenges above present an opportunity to leverage direct procurement as a strategic tool since these teams are needed to orchestrate everything from onboarding thousands of suppliers across multiple tiers to collaborating with trading partners across all ecosystems, including channel, supply, logistics and global trade. New technology and innovation are required to support this strategy by equipping direct procurement teams with access to an extensive trading partner network to get the data they need and integrated, purpose-built software applications to orchestrate all processes from start to finish.

The Right Technology for Competitive Advantage

No matter where you are in your direct procurement journey, choosing the right enabling technology is crucial to achieving a competitive advantage. Companies should look to a solution provider that can bring all of the essential direct procurement functions together on a single operating platform connected to a global trading partner network to provide the data, applications and artificial intelligence (AI) required to transition direct procurement processes and resources from tactical to strategic. With these broad and deep capabilities on one operating platform that grows with you as business needs mature, you can meet today’s requirements while equipping your organization for future success.

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