Demand Driven Procurement and Supplier Integration Strategies
Demand Driven Procurement and Supplier Integration Strategies will reduce inventory liability & improve supply performance. Leveraging Demand Driven solutions to align the entire supply chain network to the requirements of the market will enable system-wide visibility, control, and predictability. A business can therefore develop a competitive advantage in the marketplace in terms of supplier reliability, Off-Balance Sheet (OBS) Liabilities and total cost of ownership through the adoption of Demand Driven Procurement strategies, innovative inventory policies and optimized demand signals; minimizing the risk of crippling supply-chain disruptions.
Traditional inventory management techniques lead to organizations being susceptible to shortages and excessive levels of inventories while amplifying demand volatility throughout the supply chain (Bullwhip Effect). Off-balance-sheet liabilities increase as organizations push inventory upstream forcing their suppliers to hold substantially more inventory to overcome volatility in their own demand, to reduce supply disruption to their organization such that they can maintain service level requirements. However, in practice, this generally increases inventories and shortages through further supply chain distortions and demand volatility amplification the deeper you go into your supply chain.
Implementation of a Demand Driven Procurement Strategy
As High Impact’s consulting team transform your supply chain they will align the Procurement process with our Demand Driven Supply Chain methodologies. With a Demand Driven Procurement strategy deployed we will look to fully integrate the Supplier network as an integral part of your new Demand Driven Supply Chain. Pushing inventory back up the supply chain is not the answer, even with contractual obligations in place; inventory needs to be positioned strategically throughout the entire supply chain. Integrating your suppliers into your Demand Driven Supply Chain will help to provide further visibility and control in the supply chain enabling lead time compression, and reduced inventory liabilities while increasing overall service levels for all business entities. Its a “Win-Win”.
Our Demand Driven strategies can be applied to all nodes in the supply network and will drastically reduce the operating costs resulting from micromanaging the entire supply process. The number of shortages, the excessive raw material inventory requirements (including off-balance-sheet liabilities) and the long supply lead-times will dramatically improve leading to significant improvements in supply reliability.
The Procurement Challenge
Evermore challenging and complex supply chains, long lead-times coupled with high levels of demand uncertainty mean that today’s procurement and supplier management operations require a series of best-in-class Demand Driven tools and techniques to enable them to support working capital optimization initiatives while supporting a drive to improve overall customer service levels.
The need for cash flow efficiency is driving companies to carry lower levels of inventory, even with today’s increased uncertainty in market demand. At the same time uncertainty in supply, driven by long lead-time, disruptions and increased competition for globally constrained raw materials make the procurement function more challenging than ever before. Concurrently, efforts to forecast the market requirements are just getting worse in this business environment we know as the New Normal. In this New Normal suppliers endeavoring to provide reasonable services levels are increasing their inventories to keep up with their key customers’ demand volatility; exacerbating an already unwieldy situation.
The problem to be solved is how to develop a supply strategy that not only ensures the lowest total costs but also minimizes the risk of crippling supply disruptions. The supply network needs to be decoupled and utilize Demand Driven MRP to provide improved visibility and predictability to suppliers. Strategic decoupled inventory that is dynamically right-sized to absorb the inherent levels of volatility in demand and the variability in supply will improve customer service levels and provide the visibility and consistency in demand signaling missing today.
The role of procurement professionals will change from one of micromanagement of the entire procurement process to one of exception management. However, this will only be possible through adoption of Demand Driven strategies for procurement and supplier integration. Procurement and supply chain teams can then start to reduce supply chain operating costs, reduce inventory liabilities, both within the business as well as those across the entire supplier network while improving the reliability of supply performance.
67% reduction in Lead Time and 41% reduction in Working Capital
Advanced Energy Industries, Inc., is a high-tech manufacturer specializing in power conversion solutions utilized in thin-film plasma manufacturing and solar energy generation. This case study reviews the work that was completed on their Supply Chain and the improvements that they have achieved.
Innovative Solutions Create A Competitive Advantage
High Impact’s industry-leading Demand Driven Procurement and Supplier Integration strategies will enable your organization to improve raw material availability while reducing inventory levels, off-balance sheet liabilities and the overall total cost of ownership, minimizing the risk of supply disruption, improving visibility and predictability of supply.
Fragmented markets and product proliferation that foster high levels of demand uncertainty, purchased items and raw materials on long lead time items are all consistent with the New Normal. These issues separately can make it difficult to forecast requirements, but combined getting an accurate forecast is impossible. At the same time, many senior executives expect their procurement and supply chain functions to ensure purchased materials and assemblies are available to meet the customer demands. A strategy that normally results in the development of intertwined procurement strategies, inventory policies and demand signals with buyers choosing to overbuy requirements to maintain high service levels, a practice that establishes excessive raw material inventories while amplifying volatility throughout the supply chain consuming capacity that is not aligned to the actual market requirements.
An alternative strategy, some companies follow is an inventory reduction program with an arbitrary percentage reduction target that an executive has defined. In an attempt to meet business operational target procurement and supply chain functions generally focus on the parts that are actually turning which subsequently results in material shortages. Another inventory reduction strategy is to make the supplier hold the inventory. Working capital optimization initiatives that push inventory back to the supplier may well improve the organizational Balance Sheet, however, the supplier is always “left holding the baby”. Key to successes is a supply chain built on true partnerships and a supply chain network that leverages the benefits of the Demand Driven Operating Model.
Our Demand Driven Supply Chain solutions are embedded into companies and suppliers as a dynamic solution that provides improved visibility and predictability for supply thereby improving supplier reliability, off-balance-sheet liabilities and total cost of ownership. Demand Driven Supply Chain methodologies will create a competitive advantage across the entire supply chain network enabling a fully integrated Demand Driven supply network that has full visibility, is more responsive to customer demand and carries significantly less inventory network-wide.