Written by Susan Avery
The following guest post is provided by Susan Avery, Editor in Chief of MyPurchasingCenter.com, a website designed to provide the essential information required by purchasing and procurement management professionals to keep their companies competitive in a dynamic global marketplace.
Oil is reaching new lows. So are commodity prices. Even some components are selling at lower prices. To stay on top of what’s happening, sourcing managers turn to reliable third parties for price forecasts.
Analysts at firms like IHS Pricing & Purchasing share forecasts for materials like metals and chemicals and components like semiconductors with their customers. The information is valuable for sourcing managers and their colleagues in engineering and finance, but unless procurement leaders are using sourcing tools like Tamr, the value is limited.
Traditionally, procurement leaders analyze third-party commodity or component price forecasts using spreadsheets, and communicate ups and downs to sourcing managers who share the information with engineering and finance.
Procurement understands what the changes mean, but unfortunately are unable to quantify the impact on the products their companies design and manufacture. They respond to changes qualitatively or by intuition, which isn’t the best strategy in this competitive environment.
While procurement does the best it can with tools it has, it doesn’t further its cause, which is that it deserves to be in a new and expanding role in the company. Researchers at The Hackett Group in The CPO Agenda: Key Issues in Procurement 2015 study call this role “trusted advisor.” One way procurement can be a trusted advisor is to have a really good understanding of where commodity markets are heading when they talk to engineering.
Developing a good forecast begins with a good understanding of and very high visibility into the company’s spend. Tamr provides procurement leaders with a more granular view of spend. It can, for instance, drill down into data that shows not only what the company spends on electronics, but also how the spend is divided among products and providers.
With that level of granularity, procurement is able to use third-party data more effectively, applying the forecasts to the spend to learn how price changes can affect it going forward based on current and planned purchasing, whether the commodity or component is used to build a new product or one at life’s end.
And because Tamr integrates with multiple ERP and other systems, procurement leaders have visibility into the bill of materials in product lifecycle management (PLM) systems. For a new product being released with components defined by engineering, procurement is able to capture the data and use sales forecasts to provide the company with information that’s more forward looking.
The better procurement is able to understand price and cost over the next six or nine months, the better able sourcing managers are to quickly put in place strategies that mitigate any issues.
Procurement and sourcing then become very strong colleagues in the company. They’re able to collaborate with engineering and finance with confidence: Sharing their views on where costs are heading and offering suggestions on whether the company might need to change out a product or design to help improve profit margins, procurement demonstrates that it rightly belongs in a new and expanded role.