Managing a complex supply chain can be challenging. With multiple suppliers, varied processes and numerous products and materials, keeping track of everything that’s going on and ensuring optimal performance is not easy. This complexity is in fact the main reason why agreement leaks happen.
So, what constitutes an agreement leak? An agreement leakage happens when a buyer decides to ignore an existing agreement when issuing a purchase order. For example, this might occur due to unplanned last-minute purchases of goods or when a buyer is handling unfamiliar categories. This can result in
- Waste of time due to additional approvals needed
- Lack of due diligence on the supplier and its ability to service the contract
- Non-adherence to the quality and performance standards for the raw materials
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Plugging this leak means extra savings and higher profitability. One way to solve leakage is by adopting procurement best practices including:
1. Precise sales forecasting would be a great start as an accurate sales analysis helps in planning purchases in a better way. This measure would help in staying within the bounds of the purchase agreement leading to efficient transactions without any last-minute hiccups. For example, for one of our customers in Vietnam we have setup a forecast model using ARIMA and other machine learning methods to help them better plan their manufacturing schedule. For further details on our solution, check out Case Study: Advanced Sales Forecasting Techniques for an Animal Feed Manufacturer
2. Strategic sourcing or the process of aligning one’s procurement processes and supplier choices to current and future business objectives. It is a way of choosing the best supplier for you who can help reduce your overall total cost of ownership and become a strategic long-term partner for your business. To do this right, one must have data and tools to do comprehensive spend analysis. For a medical device manufacturer in Singapore, we have setup a comprehensive supplier scoring methodology to achieve this using their ERP data. For further details on our solution, check out this link.
3. Defined contracts or purchase agreements that outline expected deliverables and outcomes as well as corporate and legal policies (e.g. confidentiality or privacy policies) related to supplier engagement. Long-term strategic contracts can also mean preferred pricing from the supplier, allowing the company to lower production costs. Agreements must specify key performance indicators and should include performance tracking, driving supplier accountability. Penalties can also be imposed should certain deadlines not be met. We have developed a model that tracks the supplies along with the amount spent per month on these supplies. For further details on our proposed solution, check out this link.
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