“Don’t put all of your eggs in one basket” – states the proverb of the Spanish or Italian origin. The meaning, to rely too much on a single resource or effort and to risk everything on a single venture. This idiom seems quite apropos as it relates to how we might think about mitigating risk in our supply chain by leveraging different sourcing strategies. One of the things we might work to cultivate in our supply base is diversification through the qualification of multiple suppliers to provide the same commodity type, category/line of business, or specific goods. In this third installment in our series on Sourcing and Procurement, we venture into the world of managing multiple sources of supply within SAP.
One of our keenest responsibilities in supply base management is ensuring that we are in the best possible position to deliver the right goods, at the right time, to the right place, of the right quality, and to our best cost advantage. Our job is to be as protected as possible should the unknown occur, and mitigate risk as best as we can. As we seek to diversify our supply base, our sourcing strategy becomes multi-layered and more complex. This can be very challenging to manage offline and in fact, we often find constraints in how folks think about their sourcing strategy because it is too difficult to manage via excel or other offline tools. We want to eliminate this constraint in order to take advantage of our opportunities and leverage robust Sourcing Strategies as a competitive advantage.
Managing a Multi-Source Environment Using Quota Arrangements
The heavy lifting in determining “Who’s on First?”. When Material Requirements Planning (MRP) runs in a multi-source environment, there are more rules to be considered in determining to whom the next procurement proposal should be assigned. One of the most effective ways to manage a multi-source environment is by using quota arrangements. With a quota arrangement in place, we can provide additional rules that help to ensure that the correct source is picked up for the correct percentage or quantity in the results of the MRP run, based on the rules in the quota arrangement. This eliminates manually calculating and trying to maintain splits, allowing us to tell the system how to prioritize sources, set min/max rounding profiles, and reset the base number, etc.
Quota arrangements require education, practice, and experience with different sourcing scenarios in order to become integrated into our day-to-day activities and are worth the effort. Quota arrangements open the door to opportunities in our supply base and ensure that we assign a source and execute procurement in consideration of the strategy we’ve worked so hard to negotiate. By doing so, we can monitor actual procurement and forecasted procurement versus our plan and make sure we’re honoring any commitments with our suppliers, and proactively have conversations around differences to minimize our risk. In addition, quota arrangements can be used to manage volume splits between internal sources of supply, stock transfer from one plant or DC to another, introducing new suppliers, phasing out existing business, and exhausting inventory from specific locations.
If you find you’re avoiding multi-source strategies due to the difficulty of maintenance and execution, please know that this does not have to be the case. Quota Arrangements are a strong tool to assist with advanced sourcing, and there are many others available in SAP, including those that will help you evaluate your supply base for opportunities. Let SAP track “Who’s on first?” and make the complex easy.
To read more on Sourcing and Procurement and to understand how organizations can execute within SAP to capture cost savings. Our white paper on “reducing purchasing spend by 10-15%, while maintaining a high material availability” offers more information around this topic.