3 Ways to Optimize Direct Materials Procurement

Procurement pros know that their traditional focus has been on obtaining goods and services at the lowest cost, not on the overall supply chain.

However, the last few years have exposed the vulnerabilities in that cost-centric model, as it undervalued supply security, resilience and agility. As a result, there is a greater need for procurement and supply chain to align on KPIs to help build resilience.

That’s particularly true when it comes to direct materials procurement, where the specifications, quality standards, technical expertise needed, risk of disruption and cost implications create greater complexity in the sourcing process.

By aligning procurement metrics more closely to supply chain priorities, companies can improve their resilience and still work toward procurement’s historical mission of controlling costs.

Here are three ways procurement leaders can help make this happen:

1. Create redundancies for critical materials 

As the world saw during the semiconductor shortage in 2021, disruptions to supplies of critical materials can have wide-reaching effects throughout the supply chain. Sourcing teams should conduct a thorough analysis of where redundancies might be needed for critical materials.

2. Improve demand forecasts 

Improving communication around demand forecasts is essential for suppliers to plan and manage inventory efficiently. Procurement teams can enable more effective collaboration with suppliers through modern platforms that facilitate a free flow of forecasting data between them and their suppliers.

3. Shorten supply chains 

Onshoring, nearshoring, reshoring: supply chains have started adopting these strategies to diversify their supplier base and shorten supply chains to mitigate risks like geopolitical conflict and climate change. While world markets are still experiencing significant volatility and disruption, working with local suppliers for critical materials can help build more resilience in your supply base.

Also watch: Cost Efficiency Vs. Resilience: Striking the Right Balance in Direct Materials Sourcing

Aligning Procurement Metrics To Broader Priorities

The last three years have revealed the vital role of procurement and supply chain in enterprises, and the increasing need for these critical functions to align for greater business resilience, continuity and sustainability.

Procurement leaders can help drive successful direct material procurement by examining metrics from a broader context. Priorities should not only encompass savings and cost avoidance, but also metrics like supplier management, on-time orders and PO accuracy.

Taking a more holistic approach to direct materials procurement can help enterprises improve their competitive advantage and avoid disruptions in today’s volatile marketplace.

Know more about direct materials procurement in our bulletin Direct Materials Procurement in Europe: Five Imperatives To Ensure Supply Continuity