4 Strategies to Reduce Indirect Spending/MRO

While Indirect Spending/MRO (Maintenance Repair Operating) savings go directly to the bottom line, they are often overlooked because of the following reasons:

• If purchasing savings programs exist they usually focus on high dollar value items used in the products being manufactured.
• Indirect expenses items are frequently not handled by the purchasing department or those trained in purchasing.
• Indirect is viewed as 100’s or even 1000’s of monthly purchases with values too small to justify careful scrutiny.
• Little or no top management attention is given to this area.

However, opportunities in indirect cost reductions are endless: from light bulbs to janitorial services, from copy paper to travel expenses, from rent to spare parts, from telephone to courier services.

?If these expenditures have not been looked at carefully, our experience shows that 10% to 25% savings are usually available. Below are 4 ways to reduce indirect spend.

1. Buy from Authorized Distributors!

?Many of these savings are easy to grasp like low hanging fruit. For one recent client, we simply changed the supplier of a packing material to an authorized distributor instead of the past supplier for a savings of 30%.

The client was not aware that he had been purchasing from an unauthorized distributor, who in fact was buying from the authorized distributor and then adding his markup to the final price.

2. Watch Those Staff Tickets!?

Other opportunities may be a little higher in the tree. For example, one client was extremely surprised to discover they paid almost 40% higher ticket fares on 133 airline tickets because employees were selecting carrier’s based on employee’s preference rather than lowest fare.

This same analysis also showed that 32% in lower fares could have been obtained on 127 trips by using 7 & 14-day advance ticketing.

These plus numerous other travel related savings resulted in a total of 12% savings in travel expenses alone.

3. Reduce Suppliers!

Savings are also found in areas like advertising, which is usually off limits to even very aggressive cost reductions programs.

One study of a multi-product line manufacturer showed 57 different brochure printers were being used.

Reducing this number to 10 saved 16% of a $1.4 million expenditure and also provided savings in administrative costs since fewer invoices had to be paid and fewer supplier records maintained.

?4. Reduce Admin Costs!

Even mundane areas such as courier services can generate profits when users are educated in "best practices".

One company discovered 23% could be saved by using "Overnight by 3:00 P.M." instead of "Priority Overnight by 10:30 A.M."

Many users admitted that, in most cases, the 4-1/2 hours would not matter.

So How do You Realize These Indirect Savings?

To begin, it’s important to view indirect spending not as fragmented, insignificant purchases charged to various department budgets, but strategically as annual expenditures by the entire company, grouped into specific categories of goods and services.

In this way, $100 per month in office supplies purchased by the accounting department, to which little attention will be given, becomes $60,000 per year in office supplies for the entire company.

This amount of annual volume will be of significant interest to office products suppliers who will be more than willing to give substantial discounts for an annual contract of this or even smaller amounts.

You may also want to review the reasons given above for overlooking indirect spending as a profit generating area and see how they relate to your operation.

It can also be of great benefit to conduct a training program for non-purchasing personnel involved in indirect spending. Usually non-procurement employees involved in purchases are not even aware that it is important to ask for and expect discounts.

It is also important to give your indirect savings program an on-going emphasis, not a one-shot or program-of- the-month effort. There are so many ways to save money in this area, that year after year motivated and creative people will keep developing new opportunities.

Most Important!

The first savings may come from answering the question:

"Are we buying Things Right?"

but subsequent and significant savings are also available in determining:

"Are we buying the Right Things?".

The above examples are just a few of many ways to reduce cost through application of good procurement and organizational practices.

By viewing your expense spending as a revenue generating opportunity, today’s enlightened management has another tool to increase profits.

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