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Not all supplies and expenditures are directly related to an organization’s end product. Indirect procurement includes sourcing products that are not directly a part of a company’s product manufacturing process. These can consist of any item a company uses to function, from office supplies to rents and software licenses. Purchases are often decentralized, managing them can be challenging. While they may seem individually small, their collective impact on a company’s expenses can be considerable.
Direct procurement processes are often managed by dedicated procurement teams. However, as organizations realize the tactical advantages of making their procurement processes more efficient, the importance of managing indirect spending has also started to be highlighted.
Below, we detail the steps that need to be followed by organizations that aim to streamline their indirect procurement processes.
1. Aggregate Information into Categories
Some needs like office supplies are common across all departments. By gathering data on such similar demands, you can identify preferred suppliers for each category and place bulk orders to generate savings. Carrying out contract negotiations with these suppliers will let you reduce your indirect spend. Placing transactions consistently with the same suppliers for long terms can further open the door to discounts and deals that can not be realized when placing orders with multiple suppliers in a scattered fashion.
It also becomes easier to ensure ethical sourcing throughout your organization when a consolidated list of suppliers is authorized for both direct and indirect purchasing. This also strengthens your inventory management and operations as all the supplies will be sourced from a single source on contractual basis and you can easily keep track of materials held in stock, decrease high transport costs and make sure your business has a pain-free production and minimize the risk of delays.
Decentralized orders common in indirect procurement can generate wastage and add to unnecessary expenses. Assigning one or more managers to handle indirect spend by giving them the authority to place the bulk orders and approve of other employee demands will ensure that all orders are processed through a proper channel. Data review and spend analysis will become easy as the managers will be expected to have their databases. You can also route the approval workflow to these managers automatically if you have a central software-based solution for your procurement needs.
2. Work to Improve Visibility
Transparency is the key to improving processes and cutting costs. You need to have work on building relationships with your procurement team members, encouraging them to collaborate amongst themselves, work with managers, and not go for maverick spending. Full visibility within procurement departments is only possible through the use of technology: a central platform collects and tracks the data for you.
Another advantage of such a centralized platform is that it will streamline repetitive procurement tasks like supplier onboarding and updated budgeting that are admin intensive. Monthly purchases or any other frequent purchases will be automatically stored in the centralized database and this data will be well-protected with encryption. With an automated workflow, more visibility can be achieved over supply purchasing activity and this will enable you to enhance your workforce productivity.
3. Stay Proactive
You need to constantly be on top of market research to make sure you are authorizing suppliers of quality who offer products at competitive prices. Complacency may lead to continued purchases with suppliers who begin to overcharge as time passes. Supplier performance will need to be continuously tracked as well, ensuring that the quality of goods or the supplier’s customer service does not decline with time. You will further need to take control of your organization’s contracts to analyze and amend them. Spending patterns will have to be continuously checked as well. You will also periodically need to arrange cleanups of unnecessary data to ensure that you focus only on priority information and save your time.
One of the most important steps in staying proactive with your procurement process in this area is digitizing and automating your processes. You can integrate softwares that manage your suppliers, inventory management and streamline request for proposal processes as most of these processes will eventually have to be automated in the future for your company to stay competent.
Current indirect procurement processes across many organizations face the need for updates and improvements. You need to be able to look at the whole picture while focusing on certain key aspects. Through enhanced transparency, stronger cooperation and properly deployed technological tools, the indirect procurement process can effectively be streamlined to enable cost savings for organizations.