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This in-depth article looks at how manufacturing companies can develop new procurement strategies based on direct material sourcing to overcome the challenges of saturated Western markets and Asian competition.
Accenture identifies leading practices to help companies reduce procurement costs by 10-15 percent and ultimately achieve high performance through procurement.
The manufacturing industry continues to feel the strain of a saturated Western market and competition from emerging markets, particularly those in Asia. As a result, tier-one suppliers have adopted new procurement strategies such as supplier collaboration, in an effort to cut costs. Tier-two suppliers are following suit and discovering that optimized and transformed procurement organizations can help them beat the competition.
Accenture’s experience in direct material sourcing indicates that suppliers should collaborate more to reap the benefits of a global supply chain, and should differentiate between suppliers of high- and low-tech parts. In addition, sharing information across the supply chain and efficient management of raw material strongly contribute to effective procurement and overall success.
Suppliers also need to implement processes to manage procurement risk in order to achieve procurement excellence.
Like most industrial equipment suppliers, automotive suppliers face numerous challenges, both internal and external.
External challenges include:
Management of raw materials. Companies are using a range of strategies to overcome cost pressures caused by volatile raw material markets.
Global competition. Competition from Asia, especially China and India, is pressuring suppliers—although they are also benefiting from lower costs themselves.
Internal challenges include:
Supplier collaboration. Suppliers (especially if they are medium-size or smaller) may require a change in mindset to engage with upstream offshore suppliers.
Holistic information sharing. While data may be easy to share, it can often seem as though the company is giving away core business information.
Risk management. The value of managing procurement risk is often underestimated—but it is essential to have a backup procurement plan to ensure business continuity as the risk to the supply chain presented by upstream suppliers can be substantial.
Accenture is typically able to help clients realize savings of 10-15 percent on the procurement budget. Leading practices include:
Implement a structured procurement process. These suppliers conduct standardized, periodical requests for quotations (RFQs) and well-prepared, professionally executed fact-based negotiations.
Consolidate the supply base with “tail-end” cuts or acquisitions. Best-in-class companies take a rigorous approach to thinning out their base of suppliers by cutting off low-performing suppliers that do not add value or, in some cases, by acquiring small upstream suppliers.
Ensure suppliers share your growth strategy. Suppliers that have strategies that match their own needs.
Utilize your brand strategy. Top tier-one suppliers actively position their brand to attract the best potential suppliers.
Communication and collaboration with suppliers. A single contact person who understands the value of collaborating with the supply base should be in place.
Share R&D costs with selected industry peers. Top companies form alliances with strategic and non-competitive industry peers to help share the costs (and ownership) of joint research and to speed up product development.
Conduct risk management. Best-in-class suppliers actively use risk management tools and strategies.
In addition to these general leading practices, top-performing automotive suppliers have defined specific approaches for sourcing particular types of goods.
Florian Kache is a consultant within the Operations group of Accenture Management Consulting. Specializing in sourcing and procurement, he has profound experience from international projects within the automotive, chemicals, communications and high tech industries. During the last five years he worked successfully on various projects focusing on global strategic sourcing, procurement transformation, and carve out transformation in M&A divestitures. Kache is based in Frankfurt, Germany.
Lars Bettermann is a senior manager in Accenture Management Consulting. He is based in Cologne, Germany, and has extensive experience in the automobile and industrial equipment industries. His main focus is on challenges within sourcing and procurement such as global strategic sourcing, procurement transformations and process excellence.
Ralf Mägerle is a director at Accenture and leads Accenture’s Sourcing & Procurement Management Consulting group in Austria, Switzerland and Germany. He has spent the last 19 years helping clients in several industries achieve high performance in procurement.
November 4, 2011
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