Procurement compliance
often presents a difficult challenge for any manufacturing organization,
regardless of how strict and well managed it may be. While many procurement
teams feel they have effectively leveraged spend through preferred supplier
negotiations and purchasing processes, reality is that they have only hit the
tip of the iceberg. The main factor that holds every
organization back is data quality, or lack thereof, related to inventoried
parts. Some parts, and their associated description, radiate with accuracy and
attribute information. Unfortunately, this only represents about 10%, arguably
much less, of the items in a given database. More realistic are parts that
barely have a part number or any type of description that would allow the
preferred supplier to accurately provide a replacement part. Without clean data
there is a good chance that the agreement, which was originally negotiated with
the preferred supplier, doesn't accurately represent the organizations true
spend. Without quality data product group reporting lacks accuracy that could
very well change the margin, cost savings, inventory commitments, etc., that
are deserved when negotiating. In most cases, the majority of companies can't
tell definitively what they bought, who they bought it from, and how much they
bought it for in the past week, let alone the past twelve months. P-cards, free
text, VMI one line invoices… these are all contributors to poor data and
insufficient item detail information.
In order to
maximize spend leverage and utilize preferred supplier programs to their full
potential, procurement teams first need to address the data issue. By
implementing a data cleansing project, legacy data will be
cleaned, standardized, and enhanced so as to provide an item master that is
consistent amongst product groups, while containing accurate and attribute-rich
descriptions. Once clean, data will be formatted to meet the specific
configuration requirements of the chosen ERP. Since each enterprise system is
unique, it is imperative that a strategy be developed to ensure that the
cleansed deliverable meets technical criteria such as file format, character
limitations, field population, etc. A defined Standard Operating Procedure developed
at the beginning of the cleansing initiative should clearly articulate the
formatting requirements. During the cleansing process, duplicates will be
identified at both the plant and corporate level. On average, duplication
within a standard item master ranges from 10-20%, but can sometimes climb as high
as 30%. Duplicate identification provides significant opportunities to reduce
on hand inventory and further leverage spend. For best results, it’s also a
great time to run an OEM to MRO item conversion project in parallel with the
cleansing initiative. Be careful though, while some parts may seem to be
identical at first glance there can be minor variations that can have
devastating effects on machinery if used improperly. It is best to include members
from the engineering team as well as an external subject matter expert when
making these interchange decisions.
Now that you
have implemented a data cleansing project and finally have quality data to
generate accurate reports, you’ll be quite shocked to learn just how many hidden
cost savings opportunities can be discovered during the Inventory Optimizationand Spend Analysis. The key to maximizing spend leverage and effectively
utilizing preferred supplier programs is to manage procurement compliance at the
SKU level. While you may have thought this was impossible before you had clean
data to work with, your new corporate item master enables clear and detailed
visibility right down to the individual item. If you’re wondering how you will
control compliance at the plant level, there are solutions available to enforce
buyers and purchasing agents to order “Preferred” items over “Non-Preferred”
items, as well as, third-party procurement organizations that will manage all
purchasing and procurement functions for you. By managing compliance at the SKU
level, you’ll be able to take your procurement performance to an all time high
as you begin saving the company millions each year.
For more
information on Strategic Procurement and Compliance solutions, visit www.imaltd.com or contact info@imaltd.com.
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