Supply Chain Trends
Back to Basics Purchasing

Back to Basics Purchasing

Across the manufacturing industry, automation is no longer a question of if but when and to what degree. As industrial automation has become commonplace, companies are struggling to find workers that possess the necessary expertise to tend and maintain robots and related technology. A recent report from Deloitte about the skills gap in U.S. manufacturing stated, “Over the next decade, nearly 3 ½ million manufacturing jobs likely need to be filled. The skills gap is expected to result in 2 million of those jobs going unfilled.” The report went on to say that the anticipated skills gap is in large part due to “a lack of STEM (science, technology, engineering and mathematics) skills among workers.”

The growing scarcity of qualified workers will not only affect production, but procurement as well. It is likely that purchasing teams will see longer lead times and higher material costs as manufacturers work below capacity. With this grim outlook, purchasing teams should prepare by going back to the procurement basics:

1. Accurate Demand Forecasting

Accurate demand forecasting begins with collecting and sharing information across the supply chain. That means manufacturers, distributors, and other supply chain members should share critical information, such as new contract acquisitions, project schedules, and demand history. Point of sale (POS) reports are also effective tools for tracking demand trends. Integrating SKU tracking into POS reports will improve accuracy of data and give detailed insights into how demand is fluctuating for particular components. Another important way to gather demand data is to survey industry experts and buyers. Surveys will help reveal industry trends beyond the bounds of your specific supply chain.

Collecting this type of detailed data allows procurement teams to blend qualitative and quantitative methods to create the most accurate forecasting models possible. Using this information, companies can then manage production runs and inventory levels more effectively.

2. Inventory Management

The general rule of inventory management is to minimize costs by holding inventory for as short a time as possible. However, with the looming deficit of skilled labor in the manufacturing sector, it behooves buyers and supply chain managers to consider holding more inventory. The key factors that procurement teams should note when considering holding more inventory are upcoming price increases and standard lead time changes. Based on these factors, purchasing teams should run updated return-on-investment reports to determine if holding more inventory will save money compared to the increased cost of parts or the costs of a line down caused by longer lead times. In addition to paying close attention to price and lead time increases, companies should also consider utilizing contract pricing and dedicated inventory agreements with suppliers. Both of these options reduce risk and can provide cost saving in the long run.

3. Supplier Assessment

A cornerstone of an effective supply chain, supplier assessment is set to have an increasingly important role as the scarcity of skilled manufacturing workers rises. Companies should put a premium on suppliers who meet delivery schedules, quality standards, and offer competitive prices. Aside from these typical factors, businesses should also select and evaluate suppliers based on data sharing (critical to demand forecasting) and additional services (contract pricing, dedicated inventory, and so forth). By evaluating suppliers based on these criteria, companies can determine which suppliers will reduce risk and minimize costs. Furthermore, supplier evaluation allows companies to easily consolidate their supplier base to a few trusted suppliers—another effective means of cost reduction.

Smart buyers will get back to these basics to navigate today’s complex manufacturing landscape—saving money and becoming more productive in the long-term.

Jon Pickard is a marketing project manager for electronic component and fastener distributor Bisco Industries, overseeing Bisco’s e-commerce customer service team in addition to managing Bisco’s online presence. During his time at Bisco, Pickard has worked extensively with buyers from top-tier contract manufacturers and OEMs in both the international and domestic markets. He can be reached at [email protected].

 

TAGS: Distribution
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