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Transforming Procurement Through Value-Based Commodity Strategies: Insights from Experts

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Chris Brown, VP of Sales at CADDi, and James Bos, former VP of Global Procurement at Yanfeng, recently held an insightful webinar on leveraging commodity strategies for value-based sourcing. The webinar delved into the importance of comprehensive commodity and supplier analysis to optimize procurement processes and drive cost savings.

Register to watch the full recording on-demand or keep reading to get a recap of the conversation.

[On-demand] Commodity Strategies: Foundation of Value-Based Sourcing

Introduction to Value-Based Sourcing

Value-based sourcing is an approach that prioritizes finding suppliers who offer the best overall value rather than solely focusing on the lowest price. By considering factors such as quality, reliability, innovation, and service levels, companies can build more strategic and beneficial supplier relationships.

As James Bos highlighted, “Procurement professionals should be sourcing based on total value, total landed cost to the organization. This is what separates procurement professionals from individuals who are just buyers in purchasing.”

Commodity Analysis: Understanding What You’re Buying

The first crucial step in developing an effective commodity strategy is conducting a thorough commodity analysis. This involves understanding the intricacies of the commodity, including the different technologies used in the production process and the team responsible for the strategy.

Key Elements of Commodity Analysis:

  • Identify the commodity and its sub-categories
  • Understand the various technologies and processes involved
  • Determine the core team responsible for the strategy, including Commodity Manager, Product Engineer/Technical Standards, Costing Specialist, and Supplier Quality/Development
  • Involve additional stakeholders such as Product Group and Manufacturing

By breaking down the commodity into its essential components, companies can better identify opportunities for optimization and cost savings.

Assessing Commodity Considerations

When analyzing a commodity, it’s essential to consider the supply risk and impact factors. These may include:

  • Supplier Relationships (volume aggregation, capital risk, product safety)
  • Commodity Product (availability to resource)
  • Price Volatility
  • Fulfillment Risk
  • Geopolitical Risks

By understanding these considerations, companies can make informed decisions about their sourcing strategies and mitigate potential risks.

Supplier Analysis: Evaluating Performance and Capabilities

Once the commodity analysis is complete, the next step is to assess the current suppliers’ performance and capabilities. This comprehensive evaluation should go beyond price to include factors such as quality, reliability, innovation, service levels, and alignment with global diversification goals.

Developing a Holistic View of Suppliers

To gain a comprehensive understanding of the supplier landscape, companies should:

  • Map out supplier locations in relation to user plants/locations
  • Categorize suppliers based on performance metrics (quality, cost, on-time delivery, innovation)
  • Identify strategic partners that provide unique value or advantages
  • Assess supplier capabilities across various processes (e.g., injection molding, sheet metal fabrication, machining, coating)

“It’s really important to communicate which suppliers we’re exiting out of and which suppliers we’re actually engaging. This is the way you continue to optimize your supply base but truly optimize your cost.” – James Bos.

By conducting a thorough supplier analysis, companies can make informed decisions about supplier consolidation, strategic partnerships, and areas for improvement.

Supplier Consolidation: Optimizing the Supply Base

Supplier consolidation is a critical aspect of implementing an effective commodity strategy. By reducing the number of suppliers and focusing on strategic partnerships, companies can achieve significant benefits, including:

  • Cost reduction through volume aggregation
  • Improved supplier relationships and service levels
  • Reduced operational costs and touchpoints

James Bos shared his experience, stating, “One of the first things I did was eliminate that metric [arbitrary supplier count reduction]. I knew it hindered our ability to really be everything we could be.”

Instead of arbitrary supplier count reductions, companies should focus on methodically optimizing their supply base through commodity alignment. This involves:

  • Analyzing the current supplier breakdown by commodity and region
  • Identifying opportunities for consolidation based on performance and capabilities
  • Developing a strategic supplier mix that balances cost, quality, innovation, and risk mitigation

By consolidating suppliers strategically, companies can streamline their procurement processes, reduce complexity, and drive significant cost savings.

Leveraging Digital Solutions for Commodity Strategy Implementation

To support the development and implementation of effective commodity strategies, CADDi offers a powerful digital solution called CADDi Drawer. This AI-powered software enables companies to digitize and search all drawings and quality, cost, and delivery (QCD) data, providing valuable insights for procurement decision-making.

Key Features of CADDi Drawer:

  • Digitizes and searches all drawings and QCD data
  • Extracts data from ERP, PLM, and other systems
  • Enables comprehensive analysis of supplier performance and capabilities
  • Supports data-driven decision-making for supplier consolidation and strategic partnerships

“The advantage of consolidating that data and being able to help an organization understand where the opportunities are is quite significant.” – James Bos

By leveraging digital solutions like CADDi Drawer, companies can streamline their commodity strategy development process, identify opportunities for optimization, and make informed decisions based on comprehensive data analysis.

Conclusion: Transforming Procurement Through Commodity Strategies

Developing and implementing effective commodity strategies is essential for companies looking to transform their procurement processes and drive value-based sourcing. By conducting thorough commodity and supplier analyses, strategically consolidating suppliers, and leveraging digital solutions, companies can achieve significant benefits, including:

  • Cost savings through volume aggregation and process optimization
  • Improved supplier relationships and service levels
  • Reduced operational costs and complexity
  • Enhanced risk mitigation and supply chain resilience

As James Bos emphasized, “A commodity strategy is a living tool. Unless the product becomes irrelevant for the business, you’re going to keep it as a living tool. This is the way you continue to optimize your supply base, but truly optimize your cost.”

By embracing value-based commodity strategies and leveraging digital solutions like CADDi Drawer, companies can transform their procurement processes, drive continuous improvement, and achieve sustainable competitive advantage in today’s dynamic business landscape.

To learn more, please watch the full recording of our webinar by clicking the link below.

[On-demand] Commodity Strategies: Foundation of Value-Based Sourcing

For more details on CADDi Drawer and how it can support your commodity strategy development and implementation, check out another article covering the second part of the webinar series.

Ready to see CADDi Drawer in action? Get a personalized demo.

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