e-Sourcing in CPG (and other) verticals

March 6th, 2006 at 08:14am David Bush - Iasta

It never hurts to re-state the obvious.

In a recent article for Supply Chain Manufacturing & Logistics, “Best Practices for Discrete Manufacturers”, Deb Navas includes a table from the “SCM Maturity Model: Best Practices in Production, Planning, and Scheduling” by Simon Bragg of the ARC Advisory Group describing the “Planning and Scheduling Maturity for Discrete Manufacturers”. Although the rest of the article is well written and definitely worth a read, we will focus on this one aspect.

The SCM Maturity Model breaks down planning and scheduling maturity for discrete manufacturers into five categories: laggard, conservative, typical, leading, and state-of-the-art. Laggards are still living in a manual spreadsheet world, conservatives are running (often outdated) MRP planning systems and scheduling with spreadsheets, typicals have embraced LP planning but still scheduling with spreadsheets as well, leaders have moved on to LP planning with consolidated simulation based scheduling, and state of the art innovators are using LP/SLP continuously updated planning tightly integrated with simulation based scheduling.

Laggards struggle to update their plans and schedules after every unexpected market event while state of the art innovators can automatically revise a plan after every major event, such as the acquisition of a new customer, a new order, or the completion of a production order - insuring that all work (cell) processes are optimized for the overall operation.

So, what does this have to do with e-auctions and decision optimization? Nothing really, except for the obvious fact that the technologies complement and go hand in hand with the technologies used by leading CPG Manufacturers for their planning and production systems.

Leading CPG companies have built in efficiencies that allow their planning and scheduling systems to respond rapidly to major events. However, such a response time is useless if they cannot source the raw materials they need to meet a new order in a timely fashion. Integration of these key systems allows them to react rapidly to updated forecasts to maintain low inventories and accurate order volumes - which improves efficiencies and lowers operating costs. However, such savings can never be fully realized, or eaten away entirely, if the buyers spend more on procurement then necessary. This is where e-auctions, e-RFx and decision optimization come in with both hard and soft benefits.

A properly initialized and configured e-Auction system allows a CPG manufacturer to initiate a procurement event almost immediately in response to a significant event. If templates for the required raw materials already exist in the system along with potential, previous, and incumbent suppliers - an RFP/RFQ or auction invite can be sent out almost immediately and an event can be completed in a few days, not weeks. Then, when the bids are in, decision optimization, based on LP technology - that very same technology many leading manufacturers already depend on, can be used to determine the optimal lowest cost award subject to buyer allocation, risk mitigation, qualitative factors, and supplier capacities.

In other words, e-auctions and e-sourcing just makes sense for CPG Manufacturers - and it never hurts to restate the obvious now and then.

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Entry Filed under: General, Global Supply Issues/Risk, Reverse Auctions, Supply Management Best Practices, e-RFx