Explaining Key Challenges of Direct Materials Procurement

Managing spend for direct materials is a major challenge for organizations. They need to cope with:

• Cost volatility and inflationary pressures with limited transparency on cost
• Multiple non-integrated systems across functional silos
• Poor collaboration between stakeholders such as procurement, engineering, and supply chain departments
• Long development cycles due to constant engineering changes and complex BOMs, impacting NPI (new product introduction) speed and scalability

However, by handling direct spend procurement as a strategic function within the organization, as well as focusing on cross-functional collaboration between different departments and roles, businesses are in the position to:

• Reduce costs
• Better manage risk
• Create innovative and sustainable products
• Foster stronger relationships with key suppliers
• Accelerate time to market

Procurement technology must support evolving needs in automotive and industrial manufacturing:

• Rapidly changing demand drives a need for rapid response and co-innovation with suppliers to accelerate time to volume.
• Manufacturers are more global and nonlinear, with many disparate systems and processes.
• Increased competition requires aggressive cost management and a quick response to market and commodity pricing fluctuations.

Direct materials procurement solutions consequently need to help organizations to:

• Better collaborate and innovate with suppliers on product development and speed time to volume
• Simplify and automate operational processes globally and enforce compliance locally
• Aggregate demand, quickly respond to changing commodity pricing, and easily renegotiate contracts at scale

The design-to-contract process allows organizations to:

• Empower procurement by placing it at the center of the product lifecycle
• Digitize and streamline the direct source-to-contract process by tightly integrating it with engineering and supply chain workflows
• Foster cross-functional collaboration across procurement, R&D/engineering, and supply chain
• Pool R&D resources with suppliers by engaging suppliers early in the design process

The solution is a unified system designed to manage sourcing, contracting, and optimizing pricing and processes throughout the product lifecycle on both global and local scales. It covers a few key areas:

• Sourcing and contract management for initial launch and ongoing cost optimization
• Native integration to SAP S/4HANA objects including operational procurement
• Demand aggregation and automated mass renegotiation of contracts across different ERP systems
• Approved supplier lists and flexible collaboration options for suppliers
• Forward sourcing for new product introductions with deep integration to planning and engineering processes
• Comprehensive source-to-contract capabilities that cater to industry-specific nuances, including cost breakdowns, carbon footprint analysis, and complex location-specific pricing conditions
• Collaborative design or specification through integration with SAP Integrated Product Development
• Built-in integration to commodity indexes for better management of raw material cost volatility

In this video, you can see how SAP Ariba Direct Materials Sourcing for Automotive and Industrial Manufacturing supports the product development scenario.