How Consolidating Your Supply Base Can Simplify Indirect Procurement

Mature procurement teams know that managing both direct and indirect spend is essential to their organization’s bottom line. Still, most cost-cutting measures focus on direct spend because it takes up a larger portion of the budget, and its data is generally better quality and centralized through set processes. On the other hand, indirect procurement is often fragmented across hundreds — if not thousands — of vendors. Most companies simply lack the mechanisms and data visibility to effectively manage it.

At the same time, smaller expenses add up. According to McKinsey, indirect procurement costs have increased by 7% every year since 2011, and this trend is only expected to continue. As these expenses rise, profit margins fall — not to mention the risks and inefficiencies involved with a growing list of vendors and out-of-contract transactions.

The challenges of traditional indirect procurement

Procurement and Operations Teams

When various departments use multiple vendors for maintenance, repair and operations (MRO) items, it creates a messy web of disparate data records, purchase orders (POs), internal approvals, supplier confirmations and delivery follow-up processes that slow down the purchasing process. As more suppliers get added to the list, these issues become exponentially worse.

Finance & Accounts Payable Teams

Finance teams around the globe strive to develop “standard” payment terms for all suppliers to optimize cash flow. This naturally becomes difficult to manage with the large number of one-off suppliers common in indirect material purchases. Processing invoices in different formats from multiple suppliers is also tedious, costly and time consuming work. All of this can lead to duplicate electronic or mail invoices, which runs the risk of double payments.

IT Teams

For organizations that lack an enterprise resource planning (ERP) system, manually creating requisitions and POs for thousands of items using Excel spreadsheets or home-grown databases isn’t optimal. Even for organizations that have invested in purchasing, catalog maintenance and finance software, creating integrations for hundreds of infrequently used suppliers and maintaining item records for one-off items just isn’t feasible.

For solutions to these challenges, download DSSI's newest e-book "Consolidate suppliers and simplify indirect procurement with DSSI, LLC" by following the link in the comments.