In every big company the CFO is responsible for the financial numbers. The task of a CFO is to sit tight on those numbers and see possibilities to improve the financials. There are a lot of ways to improve the financial numbers. One way is to save on costs. The procurement is the department responsible for the expenses. Cutting on the expenses of the procurement, will save the company a lot of money. In this article we will explain how your company can save on costs.
The difference of direct procurement and indirect procurement
You can split the procurement in to groups, direct procurement and indirect procurement. Direct procurement is the most important because it will keep your core activities running. Direct procurement is the procurement of goods and services necessary for the production of your product. For example, if your company produces electric bikes, the batteries are often not produced by your company, but ordered from a supplier. Without these batteries the bikes can’t be sold. So, the procurement of direct goods is a priority.
A little less high on the agenda is the indirect procurement. Indirect procurement is the purchase of goods and services that support the core activities of your organization. But are not necessary for the production of your core product. It’s often called NPR (Non Product Related) procurement. Office supplies are good examples of indirect procurement. The indirect procurement creates new creditors every day. Because most of these (c-)suppliers are one-time suppliers, you’ll never do business with them again. Creating a creditor profile is therefore time-consuming and unnecessary fills the supplier base.
Outsource the indirect procurement
Because these c-suppliers are not the company’s priority but still costs a lot of time and money, a lot of companies choose to outsource the indirect procurement. Instead of ordering at different suppliers with different payment terms and invoices, your company receives one total invoice from one supplier. Outsourcing the indirect procurement can save the company up to 21% on the internal costs, reduces the supplier base by 80%. Because of this, the workload of different departments will be reduced.
Procure-to-Pay and Source-to-Pay
The procurement process consists of different phases. It starts with specifying the company’s needs, then the tendering starts. The best suppliers will be selected and the end the order will be placed at the best supplier. Once the order is placed, it’s important to trace the order and once delivered, the order must be paid.
With Procure-to-Pay the company chooses the suppliers themself but outsource the ordering, tracing and paying. Because you don’t have to control the ordering and payment process for all those single suppliers, but will receive one total invoice, it will unburden different departments in the company. The chance of irregularities in the invoices will be reduces a lot.
In addition to Procure-to-Pay, with Source-to-Pay you outsource the tendering and selecting process too. So, you are assured you’ll get the best price and conditions and you don’t have to control the whole process yourself. This can save your company up to 21% on costs.