MetalMiner’s sister site, Spend Matters, recently put out a series of questions to a range of experts at technology vendors. Our line of questioning centered on the technology renaissance, which is in its early days of taking shape, as more firms take advantage of specialized manufacturing-centric procurement technology. We will feature this series on MetalMiner in the coming weeks and hope you look forward to it as much as we do.
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The first interview (divided into two parts) features Paul Noel, who serves as senior vice president of procurement solutions at Ivalua, Inc., a procurement technology provider that works with leading manufacturers such as Meritor, Whirlpool, Michelin, Faurecia, Valeo, Thales and PSA Peugeot Citroën.
MetalMiner: Why are we hearing about a “direct procurement” renaissance of sorts in terms of procurement technology. What has changed?
Paul Noel: The rise of interest in procurement technology for direct procurement is due to the confluence of four trends.
First, the current economic climate is characterized by slow global growth, a retreat from global trade to nationalist economic policies and interest rate and tax policy uncertainty that have the potential to re-draw supply chains. In this environment, manufacturers that account for the bulk of “direct procurement” cannot fully control their top line. However, they do have control over their bottom line, and procurement technology is one of the key levers to reduce direct spend.
Second, since the early 2000s, manufacturing executives have focused more on managing indirect procurement and less on direct procurement — as indirect spend was then the biggest untapped opportunity. Enterprises have done a great job getting a handle on indirect spend, partly due to successful adoption of procurement technology. Direct spend now represents a big untapped opportunity from a procurement technology investment standpoint, given past under-investment.
Third, procurement technology that’s relevant for direct spend — partly owing to similar success in indirect spend — has developed at a rapid pace in recent years. When e-procurement first came out, direct materials was already pretty much set with MRP demand communicated over EDI. Why would you need human-centric e-procurement with that in place? Today, however, if you look at teams of direct materials procurement people, you realize there is a need to help them deal with the volume of exceptions thrown every week by MRP. Spot bids, expedites, last minute part changes. All of these need human intervention, and those humans need technology.
And fourth, with the success of both procurement and supply chain leaders in large global companies, these functions have become even more centralized across direct/operations and indirect, as well as globally across regions. With this organizational shift, these leaders want to adopt procurement suites that can address both indirect and direct spend in a single suite — hence extending their indirect procurement technology suite to address also direct procurement.
MetalMiner: What are the top challenges your customers in the manufacturing sector are facing right now?
Paul Noel: Procurement and supply chain leaders in the manufacturing sector are grappling with the following challenges:
- Reducing the overhead and compliance risks inherent in managing multiple supplier and item / component data spread across dozens of different legacy, ERP and supplier systems
- Improving supplier management and getting more value and innovation from existing supplier relationships
- Leveraging global spend and better aligning KPIs and processes
- Reinventing cost modeling strategies to accelerate savings across spend categories
- Gaining greater insight into and better mitigating geopolitical and economic risks
- Modernizing costly and archaic, in-house custom systems build for quality management; supplier information management; direct procurement; portals; and supplier collaboration
- Overcoming multi-generational skill gaps and better attracting and retaining millennial talent
MetalMiner: What technologies are most “in demand” for procurement in manufacturing today? Do you see this evolving or changing in the second half of 2017 and in 2018?
Paul Noel: We see a lot of demand for procurement technology to address direct procurement for manufacturers, in the following areas:
- Supplier and order collaboration (reducing multiple portals for EDI, manual orders, forecasting, items and invoicing to one portal)
- Supplier and item master data management
- BOM centric-sourcing with cost breakdown analysis
Supplier risk management
- New product introduction project reporting
- APQP support and quality certs
- Support for Kaizen/improvement projects and corrective action reporting
MetalMiner: Regarding President Donald Trump, Mexico and China, where will we end up from a trade perspective in 12 months? Can technology help mitigate any trade risks?
Paul Noel: It’s really hard to predict where we will end up from a trade perspective in 12 months. Recent news and policy initiatives bear witness to a more pragmatic and realist approach to trade relations with China and Mexico. The election campaign rhetoric seems to have calmed down.
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Regardless, technology can mitigate trade risks by providing better visibility into enterprise spend and the end-to-end supply chain, as well as into the supply chain from a sustainability, sourcing and labor practices perspective. In cases of shifts in trade and tax policy, technology can also provide total cost and cost breakdown analysis to better plan and adjust the tax-adjusted supply chain. It can capture manufacturing and procurement knowledge in case of supply chain shifts and relocation, and it can bring about improved insight and management of supplier and sub-contractor practices and risks. In addition, technology can provide enhanced prior alerting of economic and geopolitical risk events — and the impact of changes in the supply chain on supply risk.
To be continued in Part 2. MetalMiner would like to thank Ivalua and Paul Noel for his thoughtful input and analysis.