Some Thoughts on Direct Material Sourcing

raw materialsA few weeks ago I attended an e-sourcing trade show. A lot of good speakers, products and services. One of the conferences was “Direct Materials Sourcing”. It was made up of three panel members each from different companies. The speakers ramble for about an hour about what their companies and case studies on procurement. They seemed more concerned on showcasing the companies and themselves and had very little to do with direct materials sourcing. At the end many of the attendees asked, and in some cases, demanded, more about direct material sourcing than just success stories on procurement. That made me think I should write a little on this matter.

Direct material sourcing is different from everyday sourcing and procurement and service procurement. See, strategy wise, many of the direct material sourcing fall into the two more difficult sourcing types: Bottleneck and Critical. This is because direct materials are most of the time of very high impact to the business. They make up the core of the business. Many times they fall into being the “main ingredient” the “differentiator” the “market edge” for a product or even service. When your main thing is being source it can become your business as a whole.

The strategy to follow or the way forward on this case is to work close with the vendor. Create relationships and partnerships. Work together to build value for your business as by doing so you create value for the vendor as well. The other recommended strategy on direct materials sourcing is to lower complexity. By this you can work to make the material more competitive to source and broaden the market. This will automatically buffer any issues that your sole vendor may have and bring some healthy competition.

There are many other strategies that can be brought into the table. As case by case this strategies can be studied and review. But for starters you need to identify what is a “Direct Material” and understand that they should be treated or strategized as such. Awareness of your needs is the first step.

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