The Value of Indirect Procurement Personnel
Indirect procurement personnel hold one of the most vitally important roles in a company. There is no way for a store to sell anything if they are not open for business. And indirect spend procurement savings go straight to the bottom line.
Statistics show that up to 15-20% of a company’s annual revenue is wasted by a lack of control. Modern businesses that know how to grow revenue are well aware of this fact and do everything they can to ensure proper operations and cost management. A very large portion of this waste comes from the indirect buy due to lack of automation.
Luckily for most companies, the value of the procurement professional is catching on. But, that has not always been the case for many businesses.
Conflicting Views of Indirect Procurement Personnel
Some people, especially those in traditional business roles, believe that procurement professionals aren’t as valuable to their organization. Often the Chief Procurement Officer (CPO) doesn’t get a normal voice alongside the rest of the C-suite, but it’s even more common to not even have a CPO. In too many enterprises with lean operations, insufficient budgets are invested in automation to help effectively manage costs.
This mind-set stems from the fact that indirect spend doesn’t always have a direct impact on revenue and profitability, so it is not given the same priority as direct spend. Management may fail to consider the effect that indirect spend has on the bottom line when they are just trying to increase the top line.
Indirect procurement professionals also might not be given a proverbial “seat at the table” when it comes to major decision-making and delegation, which can negatively affect communication among department heads.
Adversely, wise management professionals are starting to take a more accurate view of indirect procurement personnel. This is because those who operate a more modern and strategic sourcing department are extremely valuable to a company’s bottom line. Improper indirect spend management can lead to significant profit leaks, which has led many businesses to begin valuing their indirect procurement professionals a lot more. Several key factors are responsible for these leaks:
- Managing indirect spend with spreadsheets — procurement professionals having to make key decisions without having real-time information to drive their decisions
- Under-utilized savings on existing contracts — professionals procuring items from sources besides where the company holds the most cost-efficient contracts
- Non-contracted spending — such as large one-off purchases or unmanaged spend where procurement professionals have not negotiated prices
- Low value spending — such as items that are below company bidding policies or low-value items that do not justify the cost
- Small purchases — includes one-off spending with low-dollar amounts that are too small to justify contracts or negotiations
This is where the value of indirect procurement personnel can clearly be seen. With unmanaged spending, even in low-dollar amounts, the costs can add up to significant profit loss.
The Hurdles Indirect Procurement Personnel Must Overcome
Because, historically, indirect spend has not carried the same urgency as direct spend, these professionals often have to overcome a few hurdles in order to do their job effectively. For instance, they often have limited resources.
It is still a common practice to track shipping purchases in a spreadsheet, manually inputting data from thousands of different sources. And that is if they even have the time or resources to track the data at all. They often do not have the budget available to purchase more sophisticated software that would make the managing of indirect spend much more efficient and accurate.
Indirect spend procurement professionals also have to deal with more complex issues than GFR buyers. This is because there are more spend categories to track, a greater number of suppliers, larger amounts of low-dollar purchases, and many more influencers involved in the process.
Poor communication is another hurdle indirect procurement personnel must overcome. Many indirect purchases are made outside of the purchasing department, with various employees contributing to “Maverick spending.” Without a way to streamline communication and ensure that all data is collected and housed in one area, indirect procurement personnel have a difficult time managing GNFR orders. This causes lost orders, which lead to extra orders; late orders, and not knowing when they will be late; poor communication regarding shipment tracking; and various other avoidable issues.
The Potential for Savings
Indirect spend can absorb approximately 6-11% of total revenue. With such a large impact on both revenue and profitability, it is a part of the budget that should always be monitored, managed, and intelligently controlled. Indirect spend control can help significantly reduce the 15-20% overall waste seen by most companies.
There is a lot of potential for savings within most of the indirect spend categories. If given the proper tools and support, indirect procurement personnel could drastically reduce costs and even increase revenue for any given company.
Indirect spend is critically important for keeping a business running properly. And the management of these resources is vital due to their positive and negative impact upon operational efficiencies, risks, and profitability. For this reason, modern businesses should focus on driving better purchasing decisions through metrics, which can only happen if indirect procurement personnel are given more credit for the difficult job they perform. They should be provided with the appropriate automation resources, such as software that allows for On-Time Delivery end-to-end supply chain visibility.
If these professionals are valued and given the means to effectively manage indirect spend, businesses can look forward to tremendous improvement in virtually every area, along with fewer issues in the shipping and receiving processes and, most importantly, an increased bottom line.
Lumatrak provides a full range of real-time On-Time Delivery visibility tools to help better manage supplier and delivery performance from order to the final mile of your indirect goods supply chain. Provided in the cloud through its Software-as-a-Service (SaaS) offering and already connected to vast numbers of manufacturers and contractors, Lumatrak’s solution can be quickly implemented to complement and enhance any ERP, Strategic Sourcing and Procure-to-Pay systems.
To learn more about how a better GNFR-delivery management solution could save your company both time and money, contact the team at Lumatrak today.