It doesn’t matter how small or big the company is, every company tries to get as much profit as possible. One way to gain profit is by creating more sales and revenue. Another way is by cutting on internal costs. Especially in big multinational companies there is a lot to win on internal costs. Multinational companies with hundreds of employees worldwide have a whole department with multiple people responsible for the procurement. This is how the procurement department can reduce their expenses and save on internal costs.
The difference in procurement
The procurement is a very important department of a company because this is where the orders be placed and the money is spent. Procurement can be separated in two different parts, direct procurement and indirect procurement.
The direct procurement is de procurement of raw materials, goods and service which are important for maintaining the company’s core business. Without the purchase of these raw materials, goods or services the company can’t produce anymore. Because the direct procurement is so important for the company, the company already have arranged the best contracts with the best prices and terms with these suppliers.
Unlike direct procurement, indirect procurement is not that high on a company’s agenda. And that’s special because indirect procurement is a real hidden treasure. A company can spare a lot of money with a good indirect procurement policy. Indirect procurement is the procurement of raw materials, goods and services which not directly influence the core business of the company. Without these goods, the company can still continue with their core business. For example, a chair or desk for an employee to work at. A company order these chairs and desks not on monthly basis. Most of the time, they don’t even start a tender for suppliers. They often choose the first supplier.
Indirect procurement is a struggle for the financial department
Indirect procurement is a struggle for the financial department because for every single order, the company has another supplier. Every new supplier means a new creditor. The supplier base will increase enormously because of these suppliers. Furthermore, every single invoice has to be controlled and paid on time. This is a time-consuming process and sensitive for errors.
The solution: Outsource the indirect procurement
Because of the struggle with indirect procurement, a lot of multinational companies outsource their indirect procurement. Outsourcing the indirect procurement saves the company time and money and will unburden the different departments in de the company. Instead of all those single invoices, a company will receive on total invoice with one payment term. This can reduce the supplier base of a company up to 80%.
A company can save extra money by outsourcing the tendering process. With source to pay a company specify their needs to a specialized company. This specialized company will start a tender and search for the best supplier with the best prices and conditions. This can save the company up to 21% on internal costs which will result in a higher net profit.