Direct Material Sourcing: Why Your Business Needs a Unified S2P Solution

Growing uncertainty in the business environment has compelled enterprises to identify (and future-proof) processes that are critical to survival and gaining competitive advantage.

One of these processes is direct material sourcing, which is vital for operations, manufacturing as well as the larger business continuity.

Not so long ago, sourcing for direct materials became a key concern when the pandemic led to prolonged lockdowns in several parts of the world, causing supply disruptions and leaving most suppliers out of stock.

Businesses of all sizes and across several industries have now realized they must have a robust plan to deal with unforeseen disruptions.

Lack of visibility into supply chain operations and data silos are key challenges that hamper collaboration with suppliers.

As a result, businesses often struggle to make informed decisions and lack the foresight needed to adapt quickly to changing conditions.

Fluctuating material costs, commodity prices and demand surges have compounded the problems of businesses and made it imperative to have real-time market visibility.

Further, as deviations in quality and specifications of direct materials can impact end products, direct sourcing requires stringent quality controls and supplier management.

Amid growing environmental and climate change concerns, businesses also need to incorporate sustainability objectives and metrics into their direct material sourcing practices. Given the increasingly stringent regulations, sustainability has become a key priority for sourcing and procurement.

Additionally, the need to constantly innovate, introduce new products and stay ahead of the curve has made it even more vital to have a resilient strategy for direct material sourcing.

How can enterprises deal effectively with all these challenges and align their direct material sourcing processes?

Here’s the answer.

By adopting an advanced direct material sourcing solution that can provide real-time visibility, identify and mitigate risks, facilitate collaboration with suppliers and internal stakeholders and derive more value from the resulting synergies.

Also read: How To Build a Direct Sourcing Strategy That Works

How an Advanced Direct Sourcing Solution Can Help

An advanced direct material sourcing solution allows businesses to digitize, connect and manage the entire source-to-pay (S2P) process by seamlessly integrating with downstream systems, including third-party product lifecycle management (PLM) and enterprise resource planning (ERP) solutions.

It helps a business manage all types of sourcing events by incorporating cost drivers on a single platform and providing access to the latest specifications, contracts and supplier information.

Advanced AI and analytics help users share cross-functional information and collaborate seamlessly with internal teams and supply chain partners.

Advanced direct sourcing solutions can provide real-time visibility into different categories, suppliers, costs, risks and other factors that are critical for sourcing direct materials. Additionally, they can provide a total cost breakdown analysis to understand various cost components and their forecasted fluctuations.

Here are the key capabilities of an advanced direct sourcing solution:

• Autonomous Procurement: An advanced direct sourcing solution can aggregate data including historical, master, third-party and real-time market feeds. With intelligent guidance, embedded analytics and automated processes, it can speed up cycle times and decode all this data to shortlist suitable suppliers across the business network.
• Bill of Materials (BOM) Management: Advanced direct sourcing solution can import BOM from multiple systems and provide real-time visibility into all items including the latest specs, inventory, order status, contracts and supplier information.
• Seamless Integration: Seamless integration with ERP systems helps to centralize, synchronize and manage master data. Such integration helps to drive a holistic approach to direct sourcing.
• Category Intelligence: A single, end-to-end category-intelligence hub provides spend visibility for all category-related sourcing activities. It can also guide users in executing sourcing strategies based on key drivers, insights and AI-based recommendations.
• Cost Estimation: With an advanced direct sourcing solution, businesses can leverage a detailed cost-driver analysis to understand raw material, component and manufacturing costs. They can use this information to make cost estimations before initiating negotiations with a supplier.
• Forward pricing: In addition to cost breakdown, a direct sourcing solution enables the user to look at market indices and anticipate future prices of goods, components and services. This information allows a business to proactively manage price revisions by making suitable price adjustments and integrating these into contract terms and conditions.
• Supplier risk and performance: Advanced direct sourcing solutions can manage supplier data and evaluate risk, diversity and performance metrics. Buyers can access the data and metrics during the sourcing process to make well-informed sourcing decisions.

Also read: 3 Ways To Optimize Direct Materials Procurement

Gaining Competitive Advantage

In a competitive business landscape, enterprises can adopt modern direct sourcing solutions to make well-informed decisions and increase operational efficiencies.

By leveraging data and analytics, they can identify new sourcing opportunities, mitigate risks and optimize supplier performance. They can also reduce lead times, improve supplier collaboration and take advantage of favorable market conditions.

Convergence is the Need of the Hour

While it’s vital to leverage an advanced S2P platform to streamline direct material sourcing, enterprises are increasingly recognizing the need to converge direct and indirect sourcing. This can help to break down organizational silos and run direct and indirect sourcing on a unified, end-to-end platform.

Such a platform can help procurement manage finance, costs and risks more effectively and enhance cost savings. By integrating direct and indirect sourcing, businesses can orchestrate processes across different functions and gain increased visibility into categories, suppliers, costs and associated risks.

To know more, download our white paper Optimizing Direct Material Sourcing With a Unified, Extensible Source-to-Pay Platform

Here’s how GEP can help your organization in direct material sourcing.