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2022/08/25 2022/08/23
Four Points to Consider when Selecting a Purchasing Management System for the Manufacturing Industry
Purchasing management operations include transaction management such as quotation to invoicing, and internal management operations such as budgets, purchase requests, and inventory, but the operations tend to be relatively uniform. Therefore, there are many similar solutions available, and many people may be wondering what points to focus on when selecting a system.
In the manufacturing industry, in particular, there are many areas that differ from general purchasing of indirect materials due to the special nature of the business, such as procurement of direct materials and inventory management at factories.
In this article, we focus on purchasing management systems for the manufacturing industry, and explain the key points of selection and points to pay attention to.
Table of Contents
Uniqueness of purchasing management operations in the manufacturing industry
Before we discuss the key points for selecting a system, let's look at the peculiarities of purchasing management operations in the manufacturing industry, which is a prerequisite for the selection of a system.
1. The formality of the purchasing process
In the manufacturing industry, a process called "centralized purchasing," in which a request is generally made by the requesting department and the purchasing department collectively makes the purchase, is often described as "rigid.
The reason for this is that the manufacturing industry also procures direct materials that are used to make products. Since the price of materials directly affects profits in the manufacturing industry, many purchasing departments tend to obtain quotes from suppliers and place bulk orders with the cheapest suppliers in order to purchase at the lowest possible price.
As a result, we sometimes hear that the purchasing department has more work to do, such as updating product catalogs and communicating with the requesting department, and that this makes the work more difficult.
Other processes often arise to comply with control rules, such as having to reissue purchase orders whenever the order amount changes.
2. Large number of items to be procured
In the manufacturing industry, the items to be procured are also highly specific.
A wide range of items must be procured, including direct materials such as materials and parts, as well as indirect materials such as reagents, fuel, and plant equipment. In addition, indirect materials, such as packaging, must also be purchased.
As a result, the manufacturing industry needs to procure a wide variety of items from a wide range of suppliers. This tends to complicate procurement management operations, as each supplier has its own special business practices and transaction methods may differ depending on the items handled.
3.Various people are involved, including those on the factory floor
Many companies in the manufacturing industry have multiple factory locations. In some cases, management is done at various locations, such as each factory, the head office, and local administrative offices.
When there are numerous locations, the operation of purchasing management at each site tends to be disjointed. In addition, because the items handled are different, the business requirements also tend to be disparate.
In many cases, attempts to manage and control such different operations at each site with a single system have been frustrated because of systemic difficulties or opposition from the site.
So far, we have introduced the peculiarities of purchasing operations in the manufacturing industry, including the items handled and the operations that occur because of the presence of factory locations. In the next section, we will introduce some points to consider when selecting a purchasing management system for the manufacturing industry, which has such special characteristics.
Points to consider when selecting a purchasing management system for the manufacturing industry
1.Can centralized purchasing be achieved without difficulty?
As mentioned earlier, the manufacturing industry tends to have a lot of centralized purchasing. This places a heavy burden on the purchasing department, which coordinates the requests and places the orders. Sourcing operations that negotiate and revise purchase prices, which are the most important tasks of the purchasing department, are neglected. If this situation is left unchecked, profits will be compressed and the company's competitiveness will also decline.
To prevent this from happening, it is necessary to have a system that reduces the burden on the purchasing department as much as possible so that it can devote its energy to sourcing operations.
For example, one key point is to have a system that streamlines operations, such as a Web-EDI system that enables the exchange of price and delivery date responses to be completed within the system , or a punch-out linkage that allows purchasing to be performed by connecting to an e-commerce site.
Also, because centralized purchasing tends to be more common, it is important to have a system that allows on-site procurement at factories and other facilities for items that do not require centralized purchasing. For example, for items that are purchased at market prices from e-commerce sites or under unit price contracts with fixed prices, it would be good to be able to procure such items with on-site approval without going through the purchasing department.
In this way, the first point is to be able to use centralized purchasing and decentralized purchasing flexibly according to the item.
For details on Web-EDI/Punch-out Linkage
What are the points to consider when considering Web-EDI? Explanation of advantages and points to note when selecting.
What is punch-out linkage? Explanation of advantages and points to consider!
2. Can the system handle the specificity of each item?
Because the manufacturing industry handles a wide variety of items, the ability to handle operations according to the items is also a key point in the selection process. The following are examples of items handled in the manufacturing industry and necessary functions.
Maintenance contracts: Order change function to extend the contract.
Fuel order: Temporary order function to place a temporary order and place the main order later, since the amount of the order cannot be determined at the time of placing the order.
Ordering of liquids, etc.: Function for over-acceptance of items that differ from the ordered quantity.
Subcontracting of construction work: A function that performs piece-work acceptance inspection according to the progress of construction work.
The above-mentioned functions such as order change can reduce inefficient work, such as re-creating an order from scratch after the order amount is fixed and submitting an application. It is also possible to respond flexibly to cases where the unit price is not determined at the time of order placement but is determined at the time of acceptance inspection due to the power of suppliers.
In this way, the key point is that the system has functions that can respond to operations according to the items handled and the customs of each supplier.
3. Is the system easy to use and controlled on the factory floor?
Since the system will be used by factory floor workers, it is also important to have a system that is easy to use and maintain control on the factory floor.
For example, if there is a punch-out linkage function that allows users to connect to an e-commerce site to make purchases, they can make purchases without having to maintain a catalog or shop around on each site.
The workload can also be significantly reduced by reading barcodes printed on delivery slips, which can be a very voluminous task at the site.
It is also important to confirm that the system can be easily operated and that there are no problems with the workload, assuming that the system will be used by on-site workers.
It is also important to ensure that the system can be operated in a controlled manner because it will be used by a variety of people in the field.
For example, it is ideal to be able to always obtain quotations for purchases of 1 million yen or more, to apply controls to operations when they exceed the budget, and to have the appropriate approver make a decision based on the amount of the purchase. By structuring the system, rather than leaving it to individual sites, it will be possible to maintain control.
Thus, in the manufacturing industry, where there are many opportunities to use the system onsite, it is important to check the system for ease of use and control.
4. Can the system handle the management of stock inventory?
The manufacturing industry handles many items, such as spare parts for equipment, chemicals, fuel, and other items that need to be managed as inventory. In particular, companies that require large quantities of materials, such as railroads and chemicals, tend to handle inventories.
Therefore, it is necessary to use a purchasing management system to manage the inventory by receiving the accepted items as stock, and then dispatching them when needed.
If the system can manage the order point, which automatically places an order when the inventory falls below a certain level, and manage the inventory unit cost using the gross average method, it will be possible to achieve more appropriate inventory management.
Click here to learn more about the key points of introducing a purchasing management system.
Select a purchasing management system that fits your company.
So far, we have introduced some points to consider when selecting a purchasing management system for the manufacturing industry. By paying attention to these points and checking the details of each solution, you will be able to reform your business and improve efficiency while ensuring operation for the special operations of the manufacturing industry.
HUE Purchase, our purchasing management system for large companies, covers a wide range of functions to meet the special requirements of the manufacturing industry. This product can contribute to significant efficiency improvements by providing many functions to meet the requirements of the manufacturing industry, including management of stock in storage, Web-EDI, and punch-out linkage.
In addition, we continue to provide case studies and other useful information from our users, so please take advantage of this service if you are interested.
