Why indirect purchasing is strategic for your business

Indirect purchasing has long been relegated to second place, unlike production purchasing, because it represents less added value. They are therefore classified as less strategic purchases.

While this reasoning is entirely understandable, there is a real stake behind good management of non-production purchasing, to ensure the performance, profitability and hence competitiveness of an industry.

In fact, according to Ordiges, controlling indirect purchasing can represent a financial saving of 10%, but produce up to a 50% increase in a company's gross margin.

Here's how it works:

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What is indirect purchasing?

Indirect and direct purchasing: definition

Among the different types of corporate purchasing, there are :

• production purchasing, or strategic purchasing, known as direct purchasing, which includes the purchase of raw materials, components and packaging, and which has a direct impact on the finished product;
• indirect purchasing, also known as non-strategic or non-production purchasing, which covers all purchases of products and services that a company needs to function properly, but which do not directly concern production.

Examples of indirect purchasing

The indirect purchasing family includes :

• services :
  • vehicle fleet,
  • facility management,
  • maintenance, etc. ;
• intellectual services :
  • chartered accountancy,
  • communication agencies, etc. ;
• general expenses or purchases,
  • consumables,
  • electricity,
  • telephony,
  • information systems, etc. ;
• non-production investments :
  • real estate,
  • financial, etc.

The case of unregulated purchasing

Purchases can also be divided into sub-categories according to their recurrence and strategic nature:

• Class A covers strategic production purchases;
• class B, recurrent and strategic non-production purchases,
• class C, non-recurring and non-strategic purchases; these are named for their urgent, one-off and unpredictable nature.

As these purchases are made outside contract, costs are often higher.

What's more, they are neither referenced in the purchasing nomenclature, nor budgeted for, nor included in the procurement section, resulting in time-consuming administrative management and hidden costs that are difficult to analyze and therefore control.

This is a very significant expense item. According to a 2020 Manutan study, unregulated purchasing accounts for a large proportion of indirect expenditure:

• 60% of the number of orders,
• 75% of suppliers,
• 85% of items.

What is a company's purchasing process?

79% of companies admit that they have no overall view of their indirect purchasing expenditure.

Source Décisions-achats.fr

Yet they are just as important, and require the implementation of a non-production purchasing strategy to save money and improve the purchasing process.

Why and how to manage indirect purchasing?

The main challenges of good management

By paying close attention to your indirect purchasing, you benefit from several key production advantages:

• significant financial savings,
• better margin control,
• improved product quality.

The digitization of purchasing increasingly contributes to achieving these objectives, as Manutan's infographic shows:

How to optimize your indirect expenses?

Indirect purchasing management can be optimized using a number of levers, such as :

• creating a repository with segmentation of non-production purchases, to better anticipate recurring needs and possibly map purchases;
  
  
• rationalizing and thus reducing the supplier portfolio, in particular by centralizing requests and analyzing offers that best match the company's needs;
  
  
• optimize logistics and inventory management;
  
  
• monitoring indirect purchasing indicators to identify the most significant or least profitable expenditure items, including :
  • number of suppliers,
  • the rate of expenditure on non-contractual purchases, etc. ;
    
    
• digitization and automation of transaction processes, using appropriate tools.

  
  🔎 Examples include:

  • Monstock, a solution for streamlining your procurement by reducing stocks and references, automating your administrative processes and innovating thanks to artificial intelligence;
    
    
  • procure-to-pay solutions for centralizing and validating purchase requisitions, consulting supplier catalogs and managing the procurement cycle;
    
    
  • an e-procurement system to manage your wild-card purchases, with services, negotiated products and referencing of partner suppliers, similar to BtoB marketplaces.

According to a Gartner Predicts 2018 study, 75% of corporate indirect purchases will be made from a marketplace by 2022.

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And what about you? Have you realized the importance of controlling your indirect purchasing? What have you put in place to rationalize your supplier panel and optimize your purchasing management?