Building resilience in UK manufacturing through smarter procurement

The manufacturing sector is inherently complex. A typical supply chain will feature tens, if not hundreds, of suppliers, and manufacturers need to ensure they have all the components and equipment they need, when they need it. The reliance on just-in-time supply chains only adds to the pressure to plan ahead, with a strong emphasis on not having large reserves of stock which can impact cash flow as well as incur overhead costs.

 

In recent years, the landscape has become even more risky, causing some organisations to pull back slightly from the just-in-time model.

 

The procurement of direct goods, which make up the end-product that is sent out to customers, is by nature responsive to the demands of customers and wider economic conditions. Ensuring a robust supply chain that can deliver what is required at the right time, without jeopardising either the availability of products or pricing, is the main focus of procurement teams, who are often under-resourced.

 

It’s no surprise, then, that in some organisations other, less critical elements get overlooked. Indirect spend, made up of the essential items any business needs to operate but which are not pivotal to the end-product, is often left untouched. Orders for personal protective equipment, maintenance, repair and operations items, office furniture, IT and office supplies, and facilities maintenance are ordered by local business units as and when required.

 

According to the Redefining the Future of Procurement report by Amazon Business, only 60 per cent of organisations have more than half their non-production spend under management, suggesting there is room for improvement in how they handle such spend.

 

Failing to manage indirect spend can cause problems for organisations, both from a cost control perspective and in terms of planning and reconciling expenses. Purchasing items on a haphazard basis almost certainly means businesses fail to get the best price and miss out on the potential to group items together into fewer deliveries.

 

For the procurement team, such a process means there is little in the way of management information, leaving them exposed to unnecessary risks. Such data can contain vital information around what is being bought and when, giving an insight into what future demand is likely to be. Undertaking an analysis of this can help teams take more strategic decisions, such as planning the best time to purchase stock or whether such items can be used more efficiently.

 

An unmanaged process can also make life difficult for accounts teams, which struggle to match up transactions made on company credit cards or through employee spending that is then reclaimed on expenses. This can result in time-consuming processes to reconcile accounts, taking staff away from other activities.

 

The use of online marketplaces has the potential to finally address the thorny issue of indirect spend, without the need for significant commitment from procurement teams.

 

Amazon Business, for instance, offers a single location where approved users can make purchases through a company account, up to approved limits. Using a platform with which individuals will already be familiar from their personal lives encourages uptake, while suppliers on the platform offer competitive rates.

 

Procurement teams can also mandate the use of particular suppliers, such as those which meet wider company goals in sustainability certifications, or which are based in the local area. From a risk perspective, organisations can generate reports into what has been spent, with which supplier and when, and can even make use of artificial intelligence to predict future needs so they can order stock in good time to avoid shortages.

 

Accounts teams, meanwhile, can clearly see what has been spent when and where, and can download invoices for each item. They can even opt to receive a single invoice from Amazon Business to further improve efficiency.

 

Many organisations are already taking advantage of online marketplaces. The Redefining the Future of Procurement report finds 35 per cent expect their use to increase over the next five years. By doing so, they can enhance their efficiency and reduce costs and supply chain risk, helping to position their organisation in a stronger position to withstand the current pressures.

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To find out how Amazon Business could help your business build more resilience into its procurement operations, visit business.amazon.co.uk/en/work-with-us/commercial/industrials