The key to achieving total cost savings in indirect procurement is making your purchasing process more efficient – here’s how
The processing costs associated with procurement are significant, potentially up to twice as much as the product itself. As a result, while the product cost may remain consideration, organisations that focus solely on this are missing the big picture and may actually end up spending much more money on their process than they save by finding or negotiating a cheaper product.
Here we explore ways to effectively reduce process costs and make your organisation’s maintenance, repair and operations (MRO) procurement process more efficient.
What are process costs?
Firstly, it’s important to know what these process costs are and why they are so expensive. The three key process costs associated with indirect purchases are:
Sourcing Costs
The costs involved in searching for, finding and ordering products from suppliers. These are often higher because organisations will have hundreds of suppliers for MRO products.
Purchasing Costs
The costs involved in creating purchase orders and handling invoices, which is made worse due to the high volume of low value purchases made for MRO.
Inventory Costs
The costs involved with stocking and managing inventory, which is made worse through large numbers of unplanned purchases and ordering from suppliers without good service levels.
How to reduce process costs
There are a number of areas that organisations – usually led by their procurement team but with support from key stakeholders across the business – can look at to improve efficiency and reduce costs.
Reducing the number of suppliers will help reduce sourcing costs, and also help with inventory costs if those suppliers have good service levels. Working with fewer suppliers and making use of strategic sourcing and procurement solutions such as digital procurement platforms will also help to save time around purchases while also giving greater spend visibility.
In addition, it’s important to look at planned versus unplanned maintenance and to work with engineers to try to reduce the number of unplanned purchases – and direct those purchases that are made towards trusted suppliers.
Overall, it’s important to address all of these issues as part of a joined-up strategy. Simply targeting one area is unlikely to have a significant impact on process costs, so it’s important to identify improvements across your indirect purchasing process and bring key stakeholders on board so that changes can be implemented consistently across the business.
By working with suppliers such as RS, it is possible to use our excellent service levels, experience and digital solutions to make significant improvements in every area of the MRO purchasing process. Our mix of value-added procurement solutions and inventory management solutions combined with our huge range of products, our delivery service and data analysis can help to identify potential savings and then achieve those savings quickly and efficiently.
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