The challenges in the purchasing process for indirect materials

In the coming weeks we will produce some short articles to share our experience in optimizing procurement processes. In our career we have been fortunate to work with large global companies, learn about their procurement challenges, collect lessons learned, and absorb best practices.??

This and the following articles will focus on the challenges of purchasing indirect materials. We hope you find them valuable.

Enjoy your reading!

Direct vs Indirect materials

To understand the scenarios and the challenges that we are going to deal with, it is important to differentiate what are direct and indirect materials.

Indirect materials are those items that have low or no relevance in the manufacturing process of a company's final product. They are usually divided into two main categories:

• MRO: maintenance (M), repair (R) and operation (O) materials;
• Administrative: office materials.

Direct materials, on the other hand, are the items used directly in the production of the final product, comprising mainly raw materials. They are critical items in the manufacturing process and, for this reason, the purchasing department selects a few suppliers to establish long-term strategic commercial agreements.

This level of relationship (few suppliers and long-term) is unusual with the indirect materials vendors due to the characteristics of these items. The universe of indirect materials is extensive and can reach the order of millions of items in some industries, which makes the development of a segmented and specialized procurement team difficult.

The number of suppliers involved is also quite high, with a scattered geographical distribution. There are large national suppliers, which compete regionally with smaller local suppliers.

Additionally, the indirect materials have low predictability. It is usually not possible to anticipate the areas need for these items, making it difficult to create long-term supply agreements with more favorable prices.

And finally, these items have low added value, requiring agile negotiations since the price margins are small.

Challenges

As seen, the process of purchasing indirect materials is complex and brings challenges to the procurement team. We have mapped below the main challenges faced by our clients:

• Overload of the procurement team due to the high volume of spot requisitions;
• Delays in goods receipt due to discrepancies between the invoice and the purchase order;
• Inefficient item management aggravated by low availability of analytical reports;
• Recurrent contract leakage due to duplicate items and lack of visibility of contracts in the ERP system;
• Competition between CAPEX and OPEX demands impacting the warehouse process.

We will talk in more detail about each of the above challenges in future posts and how we are helping our customers to overcome them with our solutions. If you would like to learn more about our products and services or want to share your experience in the procurement process of indirect materials, please contact us via the link below.

Get in touch

Do these challenges also occur in your company? Contact us to find out how we can help you.

Thank you!