This is how your company can save on the procurement costs

A company always tries to maximize their profits. There are two ways to maximize the profits. The first way is to increase sales, the second way is to save on the costs. Big companies have multiple ways to save on the costs. One way is by outsourcing a part of the procurement. In the article we explain this.

Direct and indirect procurement

The procurement is responsible for the expenses in the company. Save on the expenses means less internal costs, means more profits. Therefore, the procurement is an important department in a company. The procurement can be divided in two:

• Direct procurement
• Indirect procurement

Direct procurement

Direct procurement is the purchase process of raw materials, goods and services which are necessary for the core business of the company. For example, Apple, the company behind the Iphones are depending on suppliers for the microchips in the smartphones. Without these microchips Apple can’t produce their Iphones. So, these microchips are indispensable.

Indirect procurement

Next to direct procurement you have indirect procurement. Indirect procurement in de purchase process of materials, goods and services which are necessary for the company but not directly influence the core business of the company. For example, office supplies. Office supplies are important for the employees, but won’t harm the production of Iphones.

Outsource the indirect procurement

Because direct procurement is that important for the company, the company does these purchases themselves. They already have arranged the best prices and conditions. The indirect procurement is for those companies is not that high on the agenda. It’s time consuming and a burden for multiple departments in the company. That’s why companies choose to outsource the indirect procurement.

Outsourcing the indirect procurement saves the company a lot of money, reduce the supplier base up to 80%, reduce the number of invoices and unburden the multiple departments. As company you can choose to outsource the tendering process, ordering process and payment process. If the company let another company place a tendering process, they are insured of the best prices and conditions. Another benefit is that the company receives only one total invoice with one payment terms instead of all those different invoices from those one-time suppliers.

Procure to pay and source to pay

If you choose to outsource the company’s indirect procurement you can choose between procure to pay and source to pay. Procure to pay is outsourcing the ordering, monitoring and payment process. As company you are still responsible for the suppliers. In addition to procure to pay, with source to pay you outsource the tendering process too. You assured that you’ll get the best prices and conditions. This can save the company up to 21% on internal costs.