Why Are Most Mid-Sized Manufacturers Still Using Spreadsheets and Email for Direct Material Sourcing?

The Critical Role of Direct Material Sourcing in Manufacturing

In the manufacturing world, the sourcing of direct materials is not just a routine task; it's a pivotal activity that significantly impacts financial outcomes and for most the largest expense on a company level.

It involves the careful selection of suppliers for essential parts and materials, compliance considerations, collaborations between departments and suppliers and small mistakes can lead to very costly mistakes.

As supply chains are becoming increasingly complex and interconnected, the ability to effectively manage direct material sourcing is more crucial than ever.

Despite its importance and the substantial financial stakes involved, many mid-sized manufacturers in sectors like industrial and automotive still lean on traditional tools like spreadsheets and emails. Let’s take a closer look at why this is the case.

Why are spreadsheets still the main go-to tool for manufacturers?

Spreadsheets are still amazing for so many reasons:

Convenience: Spreadsheets are easy to use for everyone and usually requires no training or onboarding.
Flexibility: The ability to modify them for a variety of tasks and processes can be done quickly and by most people.
Shareability: Sending spreadsheets back and forth between colleagues and suppliers is straightforward.
Supplier Familiarity: Suppliers are used to using spreadsheets, why the risk of adoption and technology barriers are close to zero.
Cost-Effectiveness: Using spreadsheets is a very low cost way of working (if you do not look at indirect costs)

Limitations for manufacturers from legacy Procurement Tools

Legacy procurement tools like Ariba, Coupa, and Procurify are not built for helping manufacturers source direct materials for several reasons, leaving them with spreadsheets as the only option. These reasons include:

Industry Specificity: Legacy tools are geared more towards indirect material sourcing.
Customization and File Sharing: Limited adaptability and difficulties in handling large CAD files and changes to drawings etc.
Supplier Adoption and Collaboration: Challenges in user-friendliness and collaborative aspects for suppliers.
Cost and Complexity: Complex and high cost implementation processes and high recurring platform costs.
Support Issues: Support and training is not suited for mid-sized companies who need close contact to support and company specific training material.

What are the disadvantages of using spreadsheets for direct material sourcing?

As supply chains get more complex and manufacturers face increased pressure from regulations, data and traceability requirements and doing more with the same headcount, using manual processes will for many not be sufficient enough for staying competitive.

Data Management and Errors: Vulnerable to information overload and human errors.
Collaboration and Supplier Management: Inefficiencies in team collaboration and comprehensive supplier management.
Analytical Limitations: Poor performance in complex calculations and detailed reporting.
Security and Scalability: Data security risks and challenges in scaling operations.
Integration Difficulties: Complications in integrating with other business systems.

How do you select the right sourcing tool as a manufacturer?

Given the challenges, choosing the right tool is very important, and there are some key considerations you should consider when looking into this.

Industry Relevance: Tools specifically designed for manufacturing and direct material sourcing.
Customization: Ability to tailor workflows and user interface for your specific needs. Not just in the beginning but also years ahead and at a fair price.
Collaboration: Is the tool built for seamless collaboration between engineers, quality people, buyers, management, and with suppliers. This will be crucial for internal and external adoption.
Analytics: Make sure the tool can build the reports you need, and help you analyze your data in an automated way in the format you want.
Data Security: Make sure the software tool has all security measures in place, your data is important to keep securely.
System Integration: At some point integrating your procurement tool with your ERP and PLM system could be highly beneficial. Make sure the tool you go with can do this.
Support and Training: Live training and tailored training material is key for any major software adoption, understand clearly what the processes and standards are for the companies you speak with for onboarding, training and supporting your users.
More than sourcing: Consider choosing a tool that can help you with more than sourcing. Managing other supplier related workflows from one central system can be highly beneficial for many reasons.

In summary, direct material sourcing is crucial for manufacturing success, especially in today's complex supply chains. While spreadsheets have their advantages, they fall short in handling modern sourcing challenges. Legacy procurement tools also often lack industry-specific features.

Choosing the right sourcing tool is essential. Prioritize industry relevance, customization, collaboration, analytics, data security, and system integration. Look for a modern sourcing automation platform that can streamline supplier-related workflows.

With the right tool, mid-sized manufacturers can navigate complex sourcing requirements, improve efficiency, and drive supply chain success.