As OEM procurement departments develop strong supplier relationships they gain a solid understanding of the suppliers’ business, products and services, ultimately fostering a dependable partnership. In turn, this allows the supplier to better understand the OEMs’ needs and respond
more effectively and efficiently. This fosters an increased economy of scale for both parties. Each organization is able to collaborate on product enhancements, new product development, managing inventories and exploring potential areas of consolidation.

The cost of components and managing the supply can represent a large portion of the final equipment costs.  Mismanagement of the supply chain can spiral out of control by incurring higher product and production costs, inventory overruns and strangling cash flow.

Some key considerations in managing the sometimes hidden cost overruns of the supply chain are:

According to a survey by Deloitte, organizations with superior supply chain capabilities demonstrate significantly above average performance on both revenue growth and EBIT (Earnings Before Interest and Taxes) when compared to industry average:

Supply Chain Efficiencies With Trusted Qualified Vendors

Up until the 1970s and ‘80s General Motors had dozens of autonomous manufacturing plants that did their own thing. Each plant had their own vendors and largely operated on their own schedules. Then in 1984, GM purchased Electronic Data Systems (EDS) in an effort to tie together cross functional operations and eliminate redundancies through more real-time data communication. EDS founder Ross Perot joined the GM board of directors and became GM’s largest individual stockholder while retaining control of EDS as chairman. 

The Critical Role of Procurement 

Procurement departments play an essential role in ensuring success of material requirements planning’s (MRP) impact on production scheduling, materials forecasting and inventory control to manage an efficient manufacturing process. MRP systems at OEM companies are software-based and used to plan purchasing and on time delivery of outsourced components, as well as the entire manufacturing process.

Brennan is now offering customers within a 50 mile radius of Los Angeles, CA FedEx SameDay ® City service at rates competitive with regular ground service. This service is a fast, reliable way to send packages. 

The Big Impact of Big Data on Supply Chains

There is a tremendous amount of untapped information that can be leveraged as supply chains become more complex and fragmented. That ‘hidden’ information can be extracted from data that already exists within the OEM and/or resources outside its walls in the form of ‘Big Data’. Big data is used to understand current, and calculate future behaviors and preferences of customers. 

A Changing World: Location, Location, Location

There are still ways to manage fragmentation and remain competitive. Because construction equipment OEMs are competing in a vast global market, supply chains must quickly adapt and respond to market pressures. Speed to market and the ability to react quickly to changes in customer demand are crucial. As emphasized by DHL International, a global leader in the logistics industry, it requires “a global network of more regionalized supply chains that are closer to markets and customers”.

Functions of an MRP System:
The information controlled by an MRP system includes three primary functions:

1. The Bill of Materials

A listing of raw materials, component parts, subassemblies and final component assemblies which are needed to manufacture each unit of the finished product. Each product supplied by a specific outsourced manufacturer will have its own bill of materials. All bills of materials are then prearranged in their own specific hierarchy for production management to see what materials are required for each step in the process.

Industry Fragmentation Experienced by Procurement Departments in Materials Planning

Because of the growing global market for construction equipment, the function of equipment manufacturing procurement management is undergoing enormous changes in an effort to streamline electronic communications, control costs, improve quality of materials and ensure required organizational return on investment. Procurement managers have so many “balls in the air” it is becoming increasingly difficult to manage the front end of complex construction equipment production. 

Managing Fragmentation In Construction Equipment Parts Supply Chain 
According to a study by Zion Market Research “the global heavy construction equipment market was valued at $145 billion USD in 2018 and is expected to reach $231.3 billion USD by 2025, at a compound annual growth rate (CAGR) of 6.9% between 2019 and 2025."