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 classed as less strategic purchases.

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

In fact, according to Ordiges, controlling indirect purchasing can not only result in financial savings of 10%, but can also boost a company's gross margin by up to 50%.

Here's how it works:

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What is indirect purchasing?

Indirect and direct purchasing: definition

There are various types of corporate purchasing, including :

• production purchases, or strategic purchases, known as direct purchases, which include purchases of raw materials, components and packaging, and which have 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 operate properly, but which do not directly concern production.

Examples of indirect purchases

Examples of indirect purchases include

• services :
  • vehicle fleet,
  • facility management
  • maintenance, etc. ;
• intellectual services :
  • chartered accountancy,
  • communication agencies, etc. ;
• general expenses or purchases,
  • consumables,
  • electricity, telephone
  • telephony,
  • information systems, etc. ;
• non-production investments :
  • property
  • 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, recurring and strategic non-production purchases,
• Class C covers non-recurring and non-strategic purchases , so named because of their urgent, one-off and unpredictable nature.

As these purchases are made outside of contracts, costs are often higher.

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

This is a very significant item of expenditure. According to a Manutan study in 2020, 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 do not have an overall view of their indirect purchasing expenditure.

Source Décisions-achats.fr

However, they are just as important and require the implementation of a non-production purchasing strategy to make savings 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 can benefit from a number of key production advantages:

• significant financial savings
• better control of margins
• improved product quality.

The digitalisation of purchasing is making an increasing contribution to achieving these objectives, as the Manutan infographic shows:

How can you optimise your indirect expenditure?

Indirect purchasing management can be optimised using a number of levers, including :

• Drawing up a repository with segmentation of non-production purchases, to better anticipate recurring needs and possibly map purchases;
  
  
• Rationalising and therefore reducing the supplier portfolio, in particular by centralising requests and analysing the offers that best meet the company's needs;
  
  
• optimising logistics and stock management;
  
  
• monitoring indirect purchasing indicators to identify the largest or least profitable items of expenditure, including :
  • the number of suppliers
  • the rate of expenditure on non-contractual purchases, etc. ;
    
    
• digitalisation 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 centralising and validating your purchase requisitions, consulting supplier catalogues and managing the supply cycle;
    
    
  • an e-procurement system (online procurement) to control wild-card purchases by providing services, negotiated products and referencing partner suppliers, in the same way as B2B marketplaces.

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

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Have you realised the importance of controlling your indirect purchasing? What have you put in place to rationalise your supplier panel and optimise your purchasing management?