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Procurement 4.0: How to adapt procurement strategies for smart manufacturing

Feb. 9, 2021
Automation can streamline procurement processes.

By Emily Newton, editor-in-chief of Revolutionized 

As factories get more advanced, formerly reliable procurement strategies often fall short. Legacy processes no longer support the pioneering advancements occurring inside a factory’s walls. Thus, procurement professionals must adopt new strategies. Their methods then fall under an umbrella some people call Procurement 4.0.

Here’s a look at how to modernize procurement approaches so they match the high-tech nature of today’s factories.

Understand how a smart factory’s technology influences sourcing

Some of the first procurement duties associated with a smart factory involve sourcing the equipment for it. Only after equipment in place can people look at how their future methods of obtaining supplies must change.

Connectivity is a defining feature of most smart factories. However, that characteristic spans beyond the equipment inside. It also affects a company’s suppliers and stakeholders. And none should assume IT team members will handle a smart factory’s tech purchases; that task falls to procurement professionals more often than not. Thus, these experts must stay on top of smart factory trends.

People involved in procurement must confirm equipment and product compatibility before purchasing. Otherwise, a new software title or tool might not work with a company’s enterprise resource planning (ERP) system, for example. When procurement specialists commit to staying abreast of how products within a smart factory connect with and support each other, they’ll avoid spending money on parts they wrongly assume will work.

Streamline procurement processes with automation

Smart manufacturing facilities are increasingly automated, featuring collaborative robots working alongside humans and connected machines communicating with each other to keep processes streamlined. This automation can also support Procurement 4.0.

Robotic process automation (RPA) helps businesses not  just streamline repetitive tasks, but also ease duties that particularly frustrate procurement specialists. For example, an RPA tool could automatically reorder goods once the inventory drops below a specified threshold.

Additionally, RPA solutions can aid procurement specialists in risk mitigation. Typical international transactions involve dozens of parties, and each must potentially comply with hundreds of regulations and trade agreements. However, if a procurement specialist automates and digitizes such processes, efficiency should rise as error rates fall. (An excellent starting point is for procurement professionals to verify which tasks take the longest or have the highest error rates. Those responsibilities may be among the ideal steps to automate.)

Connect sourcing requirements and business objectives

Procurement strategies should always relate to overall business goals. Professionals must remain mindful of how their actions can contribute to a smart factory’s success. Many manufacturers use the Six Sigma methodology to improve their processes. This supports procurement, too—particularly while company representatives engage in supplier communications.

For example, the Critical to Quality (CTQ) tree is one characteristic element of Six Sigma. It involves identifying customer needs and ensuring any product and process improvements support them and result in better output. The CTQ tree can shape conversations at every stage of a process, setting the standards that supply chain parties must meet.

As procurement team members speak to new or existing suppliers, they should always connect specifications to the CTQ aspects of a business. A high-tech solution may live up to its promises of increasing output, but if it breaks down frequently or takes long to set up for different tasks, it may not support a company’s quest for quality as much as it first seemed.

Success in Procurement 4.0 requires constantly assessing whether smart-factory equipment aligns with business goals. Having this mindset is crucial when manufacturing brands communicate with suppliers about launching trial periods for new, advanced equipment.

Consider which advanced technologies most closely align with procurement

Many Industry 4.0 technologies enable procurement to happen faster or with fewer hiccups. Specialists should examine how readily available technologies can support their procurement-strategy goals.

Additive manufacturing can help companies source parts with an in-house 3D printer rather than ordering them from external providers. Such a setup also lets companies avoid purchasing and storing

components that may become obsolete. They can store digital files for often-required parts in the cloud, then print them as needed—sometimes in a matter of hours.

Nestlé embraced augmented reality for procurement, particularly when the COVID-19 pandemic prevented brand representatives from traveling to physical sites. The brand used the technology when setting up new production lines and equipment, and to engage with suppliers in richer ways than phone calls allow. For example, the research-and-development team members relied on augmented reality when working with suppliers to develop a new confectionary mold for the KitKat candy bar.

IoT sensors can facilitate the maintenance, repair and operations (MRO) side of procurement. Suppose a purchasing specialist gets real-time updates about a critical piece of factory equipment. Ongoing performance monitoring can tell them when to order parts or schedule service appointments before unplanned downtime occurs.

Procurement 4.0 requires updated methods

As today’s factories get more advanced, procurement specialists cannot afford to stick to the same techniques they historically used. Instead, they must proactively update their procurement strategies.

Applying these approaches to real-life situations will help procurement specialists adjust their strategies over time. New methods don’t tend to work immediately, but they often pay off with dedication and diligence.