BOM Integration is Necessary But Its Not the Missing Link in Direct Material Sourcing …

Supply Chain integration is!

But let’s backup.

A recent article over on Nasscom Community stated to purport why BOM integration is the missing link in direct material sourcing software.

The article made a number of great points:

0. Every component in a BOM represents a commitment to a supplier: as well as a lead time, a cost assumption based on historical pricing, revision-level tracking, and, ultimately, a production schedule that cannot afford to slip.

1. Direct integration allows direct sourcing event initiation from line items. No more cut and paste (or, even worse) manual entry of existing information into the e-Sourcing system.

2. Direct integration enables multi-level BoM visibility. Complex manufactured goods rarely have a flat bill of materials. Sub-assemblies nest within assemblies, and procurement must coordinate across those levels.

3. Direct integration creates a feedback loop that improves future procurement decisions. When actuals are mapped back to BoM line items, planners have a data trail that generic procurement systems do not provide.

But here’s what it’s missing.

Lead times depend on the supplier factory location, carriers, and currently available routes.

Quality, Risk, and Compliance data, used when multiple suppliers are being considered, lie in the Quality Management, Supply Chain Risk, and Compliance modules in the Supply Chain Suite.

Current stock and forecasts lie in the inventory management and forecasting modules in the supply chain suite.

The BoM only holds what needs to be sourced. It doesn’t hold all of the data required for Procurement to make a good sourcing decision — that comes from the supply chain systems, which generally include the BoM!

There’s a reason Bob Ferrari and I wrote a 7-part series on why direct sourcing solutions [which, by definition, include BoM Management] don’t work for direct, and that’s because direct sourcing needs to be tightly integrated with, if not part of, the supply chain suite in order to be effective.

Product Design Must Align With Procurement And Supply Chain As Well!

Port strikes, border closings, tariffs, wars, strait and canal closings, factory fires, droughts, wild fires, volcanic eruptions, earthquakes, tsunamis, mine collapses, etc. There are now an innumerable number of natural and man-made ways your supply chains can come to a screeching halt and cut off your primary (or sole) supply of critical components, parts, and materials that you need to make the product(s) in your key product line(s).

When that happens, you need to so something. If you’re lucky, you have already identified an alternate supply and can switch to it or ramp it up. If you’re not, you have two choices: identify an alternate source quick or re-design to use less/none of the component/part/material in question.

The same way Japanese snack giant Calbee switched to black and white packaging when it could no longer get the coloured ink it needed because of the situation with the Strait of Hormuz, or the same way Tesla rewrote it’s software and firmware to use different chips during a semiconductor shortage, or IKEA reimagined the metal heavy lamp to use 60 precision cut birch veneer pieces to create a spherical lampshade.

But product design can only do this if they know they can get the alternative components or materials quickly and cost effectively. They need to be able to search supplier and product databases, logistics capabilities, and build realistic cost models to see if a an alternative design is worth pursuing before digging in deep, asking a supplier to provide a customized offering, and then having Procurement saying it will cost too much, sales saying the new price point will make the product unsaleable, supply chain say it can’t fulfill the product now because of a man-made or natural (disaster) supply chain issue, etc.

Plus, once it believes it has a workable, cost friendly, alternative it can immediately involve Procurement and Supply Chain, share the data, have its thesis validated, and prepare to update production lines with confidence.

One has to remember that there are two reasons the railroad barons became so rich. The first was their exploitation of workers (before unions and worker protection laws). The second was that they were built by engineers who built vertically integrated organizations that optimized every step and ensured every interaction that was required was executed to keep costs down and profitability high. Remember that vacuums are empty, and thus devoid of profit. So don’t create them between departments if you want to be successful.

Procurement Must Align With Supply Chains

Especially in direct, as Bob and I explained in detail in our Standard Sourcing Solutions Don’t Work for Direct.

While simplistic, almost obvious, and not prescriptive, it was nice to see a recent article over on India Shipping News that echoed some of the reasons why procurement must align with fulfillment in modern supply chains.

It noted that in today’s supply chain environment, for the ecosystem to function in a seamless manner, there needs to be perfect alignment between the procurement and the fulfillment networks.

One must remember that the outcomes of fulfillment are directly impacted by the Procurement decisions. These mainly include delivery, order accuracy, and inventory availability. The procurement strategies must also be informed by the fulfillment insights, which include delivery performance and demand patterns. The operations have now transformed from being independent to following a more collaborative approach.

And we still haven’t mentioned inventory levels. In retail, 8% stock-out is the traditional average. That’s a lot of lost revenue, and in low margin industries, quite a lot of lost profit. Without alignment, organizations’ unnecessarily lose money customers would be happy to give them while losing money in stale inventory that has to be fire-sold or discarded because the organization has too much of some products and materials and too little of others.

Now, the organization’s don’t have to merge, but they have to align … and the way that happens is through shared data, shared requirements, shared goals, and shared alignment. Fortunately, with today’s systems, data can be shared across the organization in real-time. With on-line collaboration, there’s no excuse for people not to come together and outline all of their requirements and ultimate goals. And there’s no excuse for the organizations to not get together and align on what’s the most critical, and for them not to go to their common boss (the CFO) and bless the rankings on the alignment (that will be used as weightings in optimization). Once you have the goals, the rankings, and the weightings, both sides can use optimization to make the right decisions that takes the needs of the other party in mind. (In fact, there’s no excuse for all of Procurement, Logistics, Supply Chain, and Inventory Management not to be 100% aligned at all times with the tried-and-true proven tools available today.)

In other words, not only must Procurement align, it can align, and there’s no reason it shouldn’t be aligned.

Execution Capacity has Always Been the Competitive Advantage in Supply Chain

And The Key is Still Automation, NOT AI!

A recent article over on Global Trade Magazine on Why Execution Capacity Is Becoming the Next Competitive Advantage in Supply Chain gets a number of things right.

1. Procurement and Supply Chain leaders are constantly being asked to do more with less, and, yes, this has been going on for years (and, to be precise, decades).

2. They are managing larger supplier ecosystems, responding to geopolitical disruptions, navigating inflationary pressures, adapting to shifting tariffs, and controlling costs across increasingly complex global operations. At the same time, executive teams expect procurement organizations to move faster, identify new savings opportunities, and strengthen business resilience.

3. The challenge is capacity.

Most enterprises already have capable procurement teams, well-defined sourcing strategies, and clear objectives. What they often lack is the bandwidth to execute those strategies consistently across thousands of suppliers, transactions, and commercial opportunities.

With one supply chain catastrophe after another of the man-made and natural variety (port strikes, border closings, tariffs, wars, strait and canal closings, factory fires, droughts, wild fires, volcanic eruptions, earthquakes, tsunamis, mine collapses, etc.), the constant uncertainty in your supply chain and underlying costs, and supply lines disappearing without warning, execution gaps are becoming increasingly visible, disruptive, and costly.

In order to manage these turbulent times, your organization needs alternate suppliers, alternate supply lanes, the ability to re-allocate orders daily, the ability to re-route shipments in real-time, and the ability to optimize your suppliers, supply lanes, order allocations, and shipment routings. And, most importantly, the ability to identify, and manage, these (alternate) suppliers, supply lanes, re-allocations, and re-routings across all products that must be sourced globally! In other words, execution capability across the Procurement and Supply Chain organizations.

But, as the article notes, in an average organization, only so many new suppliers can be identified, existing supplier relationships can be optimized, products can be strategically sourced, orders can be re-allocated, and shipments re-directed.

This is because, while most organizations have invested heavy in classic analytics, supplier intelligence, sourcing platforms, and risk management tools, they have simply invested in visibility, not execution!

According to the article, the answer is to go from “AI Assistance to AI Execution”. But that’s not the answer. It’s not “AI Assistance to AI Execution”. It’s “Tech Assistance to Tech Execution”, whatever form that tech may be … and for the most part, it’s classic automation, which, we’re sad to say, has existed for over a decade, and been largely ignored for that time.

Let’s take each of these requirements one by one:

Supplier Discovery: when the organization needs to source, or re-source, a product, the tool automatically searches the supplier network for all suppliers that supply a similar product and then weights them on key dimensions of product similarity and organizational supplier scoring criteria for suppliers in that category (based on information on the supplier in the network)

Supplier Optimization: for a product/category, automatically run analyses that identify the right mix of current and potentially new suppliers based upon a combined ability to supply the organization’s demand with enough “slush” to allow for a supplier becoming unavailable due to supplier issues, supply chain issues, or other issues without adding unnecessary bloat to the supply base. (Considering that organizations typically spend 80% or more with 20% of suppliers, most organizations have too many suppliers but not enough for key products or materials.) This mix will be automatically optimized with the right automation solutions.

Order (Re) Allocation: re-run forecasts weekly/daily, re-allocate orders based on stock-levels, probabilistic forecast predictions, current and expected lead-times, expected supplier/lane availability, contractual commitments, etc. and choose a balanced solution that will satisfy all the probable outcomes (using optimization, not random AI predictions)

Real-time Re-routing: for every multi-modal lane, re-routings can happen at every waypoint (where modes shift, cross-docking at warehouses/FTZs is utilized, or where stops occur); re-run the models based on supply chain updates daily and if carriers/routes for segments are expected to become unavailable, costs become too high, or delivery times would stretch out too long (or could be stretched out to lower costs), possibly issue re-routing orders

Required Data: Automation can automatically pull/push data on a daily/real-time basis

When you consider that modern AI falls into Gen-AI which is literally “make stuff up”, you can’t depend on it for critical supply chains where one mistake can be catastrophic. But, fortunately, there are systems out there that do all of the above reliably on classic RPA, optimization, and analytics. (And have been for about a decade.) Plus, with the recent SaaS price compression as a result of the AI Hype wave, it’s all very affordable.

So if you want to succeed, get these systems. They’ll allow you to manage all suppliers, all items, and all lanes. You’ll be able to execute on your strategy, provided you can come up with a strategy that is adaptive enough in today’s global economy.