Missing Links Take a Chunk Out of a Bottom Line
1 comment March 5th, 2008 David Bush - Iasta
According to a recent article in Supply & Demand Executive, too often indirect costs - such as utility supplies, insurance, and staff expenses - slip under the radar, and this can have a significant negative effect on the bottom line. However, these indirect costs are often more easily controllable than direct costs, especially with a basic e-Procurement, EIPP, or P2P system, and simply attacking a small handful of missing links can allow a company to reign in these costs in such a manner as to meaningfully address the bottom line.
The article highlighted five key factors:
- Maverick Spend
Maverick spend occurs when an employee buys off-contract or off-policy. Maverick spend can be addressed by removing ad-hoc purchasing capabilities and implementing systems that force preferred suppliers and / or policies to be followed. - Contract Visibility
Most organizations have dozens (upon dozens) of contracts that lock the organization into hundreds of thousands, millions, or tens (upon tens) of millions of dollars of spend - but very few have full visibility into those agreements, their overall value, or their expiry dates. This will prevent
unwanted evergreen renewals, lost rebates, and penalties that come with failure to adhere to terms and conditions. - Intuitive Systems
The purchasing staff should be free to focus on core, strategic value-add activities and not have to waste valuable time trying to figure out how to use the system (which they will end up being inclined to bypass if it’s too difficult to use). - Indirect Cost Control
Make sure you have at least a basic e-Procurement, EIPP, or P2P system in place to minimize the time that needs to be spent on tactical buying and the possibility that someone will buy off-contract or off-policy. - Integration and Control
Make sure the systems are integrated into your ERP, SRM, and / or financial systems to ensure employees have access to complete, transparent, real-time information.
It’s not everything you can do, especially since there’s no mention of proper strategic sourcing of indirect categories, but it’s certainly a good start.
Entry Filed under: General, Supply Management Best Practices
