Indirect in-business purchases

The proper functioning of any business depends largely on the management of its purchases. Depending on their nature, they do not require the same approach and are subject to different strategies. Indirect procurement is a major issue, of which companies are becoming increasingly aware of.

Classification of purchases

In order to operate, a company needs to stock up on raw materials, equipment and a variety of products and services. This regular supply is divided into different categories of purchases:

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  • Direct purchases , known as “production purchases”: these are goods and services that enter directly into the production chain such as raw materials, packaging, etc.
  • Indirect purchases , so-called “out-of-production purchases”: they refer to purchases incidental to production as such but essential to the overall activity of the enterprise. This category includes maintenance services, computer equipment, travel, office supplies, etc.

Indirect purchases are so varied in nature that they themselves are divided into subcategories, including wild purchases . The wild purchasing category refers to sporadic purchases that are particularly difficult to control due to their unpredictability and that can be linked to very different departments. For example, it can be the rental of last minute furniture for a meeting, the purchase of salt for parking in the winter, etc.

Indirect procurement is often decentralized

Indirect purchases generate between 15 and 50% of a company’s total expenses. Often scattered across different services and from multiple suppliers, they are therefore generally poorly centralized. The company is struggling to obtain an overall view of it and the purchases take place without any framework and without respecting the previously defined purchasing policy.

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Poorly controlled indirect purchases represent a real financial chasm for the company, due to the many hidden costs they conceal. Take control of these indirect purchases by centralizing them and applying an appropriate strategy thus represents an important growth opportunity for the company. More and more managers are becoming aware of this issue and are implementing measures to this end.

How to better master indirect purchases?

The control of indirect purchases is based on the implementation of two main levers.

· Process Automation:

Making purchasing processes smoother and more automated is the ideal solution to better centralize spending and achieve an effective global view. To achieve this, it is necessary to set up a digital purchasing solution, through an e-procurement system (online procurement).

By dematerializing purchases via a suitable software package, indirect purchases are centralized automatically. The company thus benefits from a better vision of its expenses, savings on labor costs and reduced risk of errors related to manual processing of invoices.

· Rationalization of suppliers:

The fact that indirect procurement is dispersed through many different vendors is an integral part of the expenditure management problem. One of the strategic axes essential to better control these indirect purchases is therefore the reduction of the supplier portfolio.

It is therefore necessary to sort by selecting a handful of suppliers offering a wider offer. The company’s purchases will thus be much better centralized . Who says fewer suppliers also says greater opportunities for negotiations, and therefore more advantageof savings.