Jeremy Ferrer
Webinar :
Optimize your C-Class purchases and boost your results.
January
Optimizing non-production purchases is a major challenge for businesses. Indeed, these purchases, which include all the expenses related to the goods and services necessary for the operation of the company outside of its main production, represent a significant part of the budgets.
To maximize their performance and contribute to the reduction of costs, it is necessary to put in place effective strategies and processes. First of all, it is essential to have a well-structured procurement function within the company.
Before we go any further, let's first understand what non-production purchases mean.
The purchasing function within companies essentially manages two types of purchases: direct purchases or production purchases that go directly into the manufacture or production of the final product and indirect purchases, non-strategic purchases or non-production purchases.
These refer to the purchases of goods and services that are necessary for the daily functioning of the company, but that do not directly affect its production cycle. By this we mean consumables of all kinds (office supplies, administrative supplies, reproduction...), investments outside production (real estate, IT...), services (vehicle rental, transport costs, telephony, telephone, maintenance of premises...) and intellectual services (consulting, outsourcing, accounting expertise). Services may concern cleaning, maintenance, staff safety. They are usually provided by other service companies. Even though Non-production purchases are considered as not bringing added value to the company, they contribute greatly to its proper functioning.
Indirect purchases also correspond to Pareto's law class C purchases. They represent 10% to 20% of the company's total purchase volume. Although they are small in value, they represent 60% of the order volume, 75% of the number of suppliers and 85% of the number of items. All this to say that non-production purchases are difficult to control without a good purchasing policy because of their heterogeneity.
Certain types of non-production purchases are also called wild purchases or spot purchases, because they express the occasional and irregular needs of the various departments of the company. As they are carried out urgently, their management is completely unstructured. It is beyond the control of Purchasing Departments.
A purchasing manager or a purchasing director must be appointed to manage this function and ensure optimal coordination between the various actors. It is also necessary to define a clear and coherent purchasing policy that meets the strategic goals of the company.
This purchasing policy must take into account the needs of internal customers and the constraints of the supply chain. An essential preliminary step to optimize non-production purchases is the mapping of expenses. It is a question of carrying out an exhaustive inventory of all the expenses incurred by the company in this area. This will make it possible to identify the purchasing families and to determine the most relevant optimization levers. Once this mapping has been carried out, it is then possible to set up a panel of qualified suppliers, by making calls for tenders and selecting the most competitive partners.
Indirect purchases are a significant challenge in reducing a company's operating costs. Controlling these non-production purchases has real effects in improving competitiveness. One way to do this is to optimize and secure the non-production purchasing process or function.
To streamline the management of non-production purchases, several levers can be exploited. Even if the analysis of the process is similar for production and non-production purchases, the organization, establishment and management of the non-production purchasing function reveal specificities. Here are some approaches that can be taken to control indirect purchases :
Better management of the non-production procurement function requires streamlining internal requests. This step is essential before moving on to any negotiations with suppliers. It eliminates superfluous expenses by setting up a single portal that centralizes requests.
Once requests for non-production purchases have been centralized, it is necessary to move on to sourcing suppliers. This step consists in selecting suppliers that are likely to meet the needs of the company, in terms of quality, price and delivery. It can be optimized by using Sourcing-to-Pay software like Sourcing Force, which can generate between 10% and 40% savings. This step is important to successfully negotiate with suppliers and benefit from more relevant offers.
Streamlining the supplier panel is also a good practice to reduce costs related to indirect purchases. This method consists of selecting and referencing a supplier that can meet all the needs of the business. By reducing the number of orders placed and the costs associated with supplier management, it allows the purchasing department to obtain financial gains and contribute to the improvement of the company's profitability. With this method, non-production purchasing departments only receive one monthly bill instead of one bill per order.
Optimizing the purchasing function outside of production also involves automating processes. This approach makes it possible to combine technological solutions with good practice. It reduces the risk of errors and optimizes the hidden costs associated with non-production purchases.
The digitization of purchasing processes also makes it possible to shorten deadlines by automating the repetitive and low added value tasks associated with the management of non-production purchases. In addition to cost control, this results in improved customer satisfaction.
The automation of procedures is also part of a responsible purchasing approach in accordance with CSR. Indeed, it allows to have a global vision at all stages of the process while promoting communication between the various stakeholders. This makes it possible to avoid uncontrolled indirect costs and to detect potential malfunctions in the process early enough.
Communication is essential because of the increasingly strategic role played by the non-production purchasing function. A collaborative approach must be established between the various departments that have non-production purchasing needs. They are also called internal customers. Although they have always acted independently so far, they must learn to federate and communicate. A communication plan should be created. It can take the form of road shows, reviews and action plans, dashboards and an Intranet.
Outsourcing is an important tool for optimizing non-production purchases. Businesses have two options for managing their indirect purchases: either they entrust their management to a non-production buyer, or it is their administrative staff, who have no experience or skills in the act of purchasing, who is in charge of it. However, managing indirect purchases is a time-consuming task that is subject to seasonality. This is why more and more companies are choosing to outsource the management of their spot purchases to allow their Purchasing Department to focus on tasks with higher added value.
Outsourcing concerns in particular the tasks with low added value in the procurement function outside of production. It can take place only on certain stages of the process or on the whole process. This approach makes it possible to limit the administrative workload of the purchasing department and to save on the costs associated with this type of procurement.
Because of the numerous benefits of outsourcing procurement, more and more businesses are choosing to adopt this strategy. According to statistics, the outsourcing market grew by 10% in just a few years, including 20% for indirect purchases. This increase is due to the fact that these are purchases of small amounts. Outsourcing them does not create critical risks for the company. On the contrary, it allows internal buyers to focus on their core business.
In addition, there are the savings that the company could make by outsourcing non-production purchases. As the volume of these is quite small, massifying them makes it possible to obtain better price conditions. The company can thus save up to 20% on their non-production purchases.
Finally, companies that choose to outsource their indirect purchases benefit from the expertise of the agent. As the latter knows the market and the categories of purchases perfectly, he will share them with his customers. He will take care of tasks, such as monitoring contracts, monitoring the supplier market and renegotiation.
The application of these new methods greatly reduces the burden allocated to a company's non-production purchases. However, the implementation of an adequate solution must be closely monitored.
A diagnosis is necessary to describe the real needs of the company in terms of services and goods outside of production. This system also makes it possible to define the weight of purchases on finance. It is not an end in itself. However, the diagnosis has become essential for the recommendations of actions or solutions to be implemented to optimize non-production purchasing processes.
From this diagnosis, it is easier to find what actions to take.
The realization of this diagnosis can be entrusted to a professional buyer. The aim of the latter is to provide the solution best suited to the company. It must be accompanied by action plans as well as various steps to improve the purchasing strategy.
This solution must be in line with the expectations of the company and correspond to the characteristics of the supplier markets. Indeed, it should enable them to reduce their burden of non-production purchases.
Optimizing non-strategic purchases is not the same from one sector to another or from one company to another. In particular, it depends on the maturity level of the company in terms of organization, development and costs. Thus, among the main challenges of optimizing non-production purchases, we can cite the maturity of the purchasing function, the volume of expenses, expertise, the thirst for change, alternative solutions, etc.
The implementation of these measures brings numerous benefits to businesses, including cash flow gain, better margin control, improved product quality, customer satisfaction, reduced processing time and improved productivity.
Negotiating with suppliers is a crucial step in the process of optimizing non-production purchases. It is important to seek significant purchasing gains by negotiating prices, payment terms or contractual conditions. To do this, it is necessary to establish precise specifications and to know the market and supplier practices well.
The expenses allocated to non-production purchases in a company represent on average 10% of turnover. In order to minimize this burden, the firm must put in place an efficient system. The best solution to overcome this situation is to reduce costs. In order to minimize costs, action must be taken on three levels, including the definition of real needs, the consultation of prices and the respect of deadlines.
To successfully implement this new source of financial savings, the needs listed in the specifications must be limited to what is strictly necessary.
This allows the firm to do without unnecessary goods or services constituting an additional burden.
Logistics also plays an essential role in optimizing non-production purchases. It is necessary to set up an effective organization of the supply chain, ensuring the management of stocks, the management of delivery times and the control of transport costs. To do this, it may be useful to call on specialized service providers and to set up adapted monitoring and management tools.
By bringing competition into play, high-quality purchases can be cheaper.
And finally, to respect deadlines, suppliers must in fact comply with the deadlines agreed in the specifications.
In an economic context in crisis, companies are increasingly recognizing the importance of controlling non-production purchases. In this sense, they can create a specific position for indirect purchases: non-production buyer.
Working under the direction of the purchasing manager, this professional is assigned numerous tasks. First of all, he will be the preferred contact for internal customers. It will be in contact with all company departments likely to express non-production purchasing needs: marketing, supply chain, finance/accounting, sales, logistics, general services...
It also maintains the profitability of the business and saves money. In addition to carrying out an analysis of the needs of internal customers, he analyzes current contracts to verify their profitability. It also streamlines procurement to increase business revenue.
The non-production buyer also negotiates to find the best service for the company.
Even if managers tend to integrate the management of non-production purchases into the overall management of the company, there are still many levers that are not exploited optimally.
BME Consulting supports you in your project to outsource your non-production purchases to meet your performance challenges.
Risk management is an aspect that should not be overlooked. It is important to anticipate possible disputes with suppliers and to set up monitoring and control systems to minimize the risks associated with non-production purchases.
It is essential to digitize and dematerialize purchasing processes to gain efficiency and productivity. The use of an adapted information system will make it possible to centralize and facilitate the management of purchases, to have relevant dashboards and performance indicators, and to promote collaboration between the various actors.
THEoptimization of non-production purchases requires a strategic and rigorous approach. By setting up efficient processes, negotiating with suppliers, optimizing logistics and digitizing processes, it is possible to achieve significant savings while ensuring the quality of the goods and services purchased.
This optimization contributes to improving the competitiveness of the company and to strengthening its overall performance.
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