The Supply Management jobsite

Raw wounds

5 July 2011 |
Posted in: Supply chain

Craig Stephens, EpicorMore than ever before, UK manufacturers have to deal with rapid change in their supply chains. Raw material availability has become more volatile and costs have risen dramatically, with agricultural input costs 2.5 times higher than 2008, copper 2.3, and cotton nearly five.

This could be viewed as a reason for doom and gloom, but there is another side to this. The rewards for effective management of raw materials are greater than ever before.

In a competitive environment where margins are squeezed and there is increased pressure on manufacturing costs, one of the key challenges has to be to ensure raw material issues do not erode margins and stop you building the right product, at the right time and for the right price.

Raw materials are a large ‘foundation’ cost of production, particularly in the UK with shipping costs, insurance, duties and tariffs all to be paid before you get to the production line. Get the management of raw materials wrong and you can fall at the first hurdle.

Many manufacturers believe they have this area under control through spreadsheets or data extracted from manufacturing systems, but does this approach give an accurate picture, given the dynamic nature of modern manufacturing?

The truth is that, in many cases, it does not. Most companies believe they understand their supply chain, but this usually means they understand its structure, the costs they are paying and ‘believe’ they have secured the best prices. That is very different to understanding how the raw materials and their suppliers are performing in the manufacturing environment once the pressures of day-to-day life have been applied to the supply chain.

As an example, you may source the same specification of raw material from multiple suppliers. However, once consumed in production, how quickly would you know if one supplier’s material was leading to faulty products? How long would it take for that quality assurance information to be discovered and acted upon at a supplier level?

Equally, how far into the future can you accurately forecast the demand for raw materials and the most cost-effective way to source them?  More importantly, can you do it in minutes, highlighting issues based on historical evidence?

Only when the enterprise resource planning (ERP) and supply chain systems are fully integrated can these and other areas, such as consolidating transport costs or lean metrics be analysed in detail and decisions made based on what is happening across the business at any given moment. An inclusive view of business information is the only way to make decisions about the supply chain and the demands being placed upon it.

With the reality that raw material and transportation costs are reaching new highs, can you afford not to have total visibility of your raw material supply chain’s performance at your fingertips? Without fully integrated systems, you will be missing out on savings – and that is something that goes against the grain for all supply chain managers.

* Craig Stephens is director for product marketing at Epicor Software Corporation

2 Responses to “Raw wounds”

  1. It seems that only ‘vertical integration’ or ‘partnership’ will bring about cost leverage. It is because both parties, buyer and seller, have interests in the supply chain.

  2. Bit of a sales pitch here methinks!

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