Direct Material Sourcing in the Digital Age: How to Thrive

Direct materials procurement faces escalating mandates from stakeholders today.

Beyond cost efficiency, procurement teams must now juggle responsibilities such as mitigating supply chain risks, improving ESG performance and ensuring business continuity – all amid a backdrop of increased global volatility.

With procurement’s profile rising, expectations mount while available resources remain static.

According to Gartner’s Leadership Vision for 2023: Chief Procurement Officer, more than 90% of procurement leaders anticipate increasing complexity in sourcing in the near-term.

Direct materials procurement faces no shortage of challenges — from opaque upstream supply chains to market volatility to short product life cycles. Key problems include:

• Lack of Real-Time Visibility - Disconnected systems obstruct access to the timely data essential for agile responses.

• Poor External Collaboration - Ineffective coordination across partners cripples value chain alignment.

• Manufacturing Process Complexity - Interdependencies and specifications require multi-enterprise coordination.

• Market Responsiveness Needs - Dynamic conditions mandate rapid adjustability to capture opportunities.

• Cost-Modeling Difficulties - Distorted understandings of input pricing and total cost of ownership impair negotiations.

• Sourcing Inflexibility - Overreliance on single suppliers restricts continuity planning when disruptions hit.

Amid surging input prices and geopolitical shifts, navigating global markets is extremely complex for sourcing teams. Supplier relationships require enhanced collaboration. The need for better data management is intensifying as demand for supply chain visibility rises. Investor and regulatory pressures spur companies to make bolder sustainability commitments.

Surviving on status quo tactics is simply not tenable any longer. Yet many direct sourcing teams lack access to innovative digital tools needed to fulfill expanding mandates.

This disconnection between strategic objectives and day-to-day realities could stall procurement’s mission.

However, targeted technology investments properly aligned to refreshed operating models can reignite advancement.

Thankfully, a new breed of technologies show promise helping procurement organizations master complexity and extract more value.

Artificial Intelligence

AI, and especially generative AI like ChatGPT, is transforming downstream manual workflows while unlocking insights from upstream supply chain data.

For direct sourcing teams, AI delivers automation, foresight and augmented decision-making through:

• Automation - Machine learning rapidly handles high-volume repetitive tasks in procurement, freeing workers for strategic priorities. Natural language processing extracts key details from contracts and emails for touchless processing.

• Foresight - Predictive analytics tap historical data plus external signals to anticipate disruption risks, determine optimal inventory buffers, identify savings opportunities and model total cost scenarios.

• Augmented Decisions - Smart assistants answer supplier and stakeholder queries in natural language around the clock while providing tailored market intelligence to inform negotiations and mitigate risks.

Multi-enterprise Collaboration Networks

Cloud-based partnership hubs securely connect enterprises to key suppliers, logistics providers and other ecosystem players to enable real-time coordination. Benefits of these networks include:

• Enhanced Visibility - All network partners are able to access common data for inventory levels, orders, shipments, specifications and more.

• Operational Alignment - Groups can jointly plan, coordinate production and manage risks in real time rather than work in silos.

• Accelerated Innovation - Secure co-creation environments foster the development of next-gen sustainable products and services across organizations.

Low-Code/No-Code Platforms

Intuitive drag-and-drop application builders allow business users to rapidly modify workflows, alter touchpoints and create custom interfaces without deep technical skills. Advantages include:

• Agility - Procurement can adapt processes and approvals on-the-fly as requirements evolve rather than wait on IT.

• User Self-Service - Citizen developers across the enterprise can digitize manual workflows specific to their needs.

• Rapid Prototyping - Quickly test new tools and microapps to address emerging challenges and use cases.

In the ecosystem of direct materials sourcing, technology is the silver bullet for generating strategic value and meeting the expectations that enterprises are placing on their procurement teams.

By tapping this new breed of technologies to enhance productivity, collaboration and agility, direct procurement teams can conquer multi-sided complexity and balance attention to more strategic priorities like cost, risk and sustainability.

Want to learn more about how rethinking your technology strategy can help your direct sourcing teams generate strategic value? Download our white paper with Supply Management Insider, “Rethinking Direct Materials Sourcing: The Tools You Need to Manage Costs, Risks and Sustainability”, available on our Knowledge Bank.