Do you have the right strategy to reduce indirect procurement costs?
Do you have the right strategy to reduce indirect procurement costs?
Have you successfully implemented a procurement cost savings program, only to discover that your procurement expenses still need to be under control? If you answered yes to that, indirect costs related to procurement might be the weak link here.
While direct expenses are easier to track and control, indirect spending is easier to miss. This is changing now, with around 70% of procurement leaders increasingly shifting focus to regulate indirect spending in their supply chain. Your business can also benefit from this approach. However, the first step of this journey is decoding what qualifies as indirect costs in the procure-to-pay cycle.
What are the indirect spends in your supply chain?
Indirect procurement costs are those expenses that are not directly related to your production cycle or the sale of goods and services. These outlays may still be necessary for various ancillary areas of your business to function smoothly. Some common examples of indirect spending in procurement include the following:
● The cost of renting your office premises
● The cost of procuring IT support
● The expenses incurred on office stationery and supplies
● The purchase of office furniture
● The purchase of maintenance, repair, and operation (MRO) consumables
Three fail-safe ways to reduce indirect procurement costs
Here are three tried and tested strategies to keep your organization’s indirect procurement costs from ballooning beyond the budgeted limit.
1. Identify the vulnerable points in your procurement spending.
To effectively save on indirect costs, you must first identify areas where your business inadvertently spends more than necessary. A quick analysis of your historical procurement spending can help zero in on these weak links. Then, once you know what to cut down on, you can devise a plan to reduce these outlays.
2. Compare your supplier options before making a decision.
MRO procurement, office supplies, furniture, and other indirect heads may not vary significantly in quality from one supplier to another. So, compare your options and partner with a cost-effective solution vendor. Also, indirect procurement is not directly tied to production. This gives you more freedom to choose suppliers and vendors who offer the best value for money.
3. Automate your procure-to-pay system
Reports indicate that complete digital adoption and e-procurement can deliver cost savings of 45% or more. By extension, automation in indirect procurement can single-handedly help reduce wasteful expenditure and improve profitability. It also improves visibility of expenses and make the supply chain for indirect procurement more effective and efficient.
Want to get off to a great start? Say hello to your smart procurement partner!
A digital procurement partner like Moglix can help streamline your organization’s procure-to-pay cycle and optimize your procurement spends without compromising profitability. Get in touch with us to step into the future of procurement, with our tech enabled integrated e-procurement solutions.
Have You Explored These Performance Enablers for Your Procurement Team?
Have You Explored These Performance Enablers for Your Procurement Team?
While the world is still seemingly adapting to the rapid digital advancements, post-pandemic, there has been an even greater push on digitization to take center stage in procurement teams. This change has encouraged companies to remake their supply chains and is poised to think about how digital transformation plays a vital role in how the procurement function delivers value.
According to a recent study by WBR Insights, most procurement leaders in the middle east are investing less than 50% of their budgets in future technologies like artificial intelligence (AI), machine learning (ML), robotic process automation (RPA), cognitive procurement tools and more.
Strategic sourcing is becoming more predictive, transactional procurement is becoming more automated, and supplier relationship management is becoming more proactive.
A report by Gartner stated that more than 70% of sourcing and procurement professionals report using suppliers to tap into new-in-kind technology services and something outside their organization’s core business model.
Procurement is all set to become seamless and frictionless like never before, especially in the UAE. The recent announcement of the ‘Centennial 2071 project’ plans to make UAE the best country in the next 50 years and hopes to enable future generations to live a happier life with a better overall environment, more significant growth opportunities, and stronger communication links with the world. The Centennial 2071 project will focus on four core aspects: Economy, Education, Government Development, and Community Cohesion.
As the competition rises with new players entering the supply chain race, Middle Eastern businesses have a more significant advantage over existing businesses. With the help of futuristic strategies investing in new supply chain concepts and virtual or digital enablers can place them at the helm of digital innovation within a shorter turnaround time and a significant possibility of growth.
Let’s Look at Some Enablers Accelerating Procurement Performance in the UAE:
e-Procurement
e-Procurement or purchase-to-pay technology is used to make the order-delivery supply chain frictionless, contactless, and paperless. It has always existed within the market as a value-add to an on-premise enterprise resource planning (ERP) system.
e-Procurement has grown its utilities a lot more exponentially today to help procurement processes. It integrates and automates the entire back-office lifecycle of requisitioning, purchasing, receiving, paying, and accounting for indirect goods and services.
In the future, e-Procurement will increasingly leverage artificial intelligence, natural language processing, and robotic procurement automation to leverage technology into customizing the buying experience while cutting costs, increasing efficiency, reducing risk, and improving governance and insight on the internal operations. e-Procurement solutions in the UAE will be more open, network-oriented, autonomous, collaborative, and intelligent.
Catalog Based Buying
Procurement catalogs provide information about the items and services that company employees can order for internal use. While this is a very advanced way to strategically manage the overall inflow of spending, on the user end, it also gives the customer a broader and much more appealing range of products to pick.
In the future, intelligent cloud-based procurement platforms will lead to a more vertically integrated analysis, better support for CPOs, and efficient sourcing strategies. This digital transformation will elevate the procurement technologies providing business owners access to previously unavailable metrics.
Artificial Intelligence
A 2019 report on the ‘Government Artificial Intelligence Readiness Index’², which examined over 190 countries worldwide to determine its rankings, has also placed UAE at the top of the Arab world for its readiness to adopt Artificial Intelligence (AI) technologies.
Today UAE accounts for accelerated growth in AI and is estimated to account for 13.6% of GDP by 2030. With the announcement in October 2017, the UAE Government launched ‘UAE Strategy for Artificial Intelligence (AI)’ to boost government performance at all levels, especially the procurement business vertical. With the help of an integrated intelligent digital system, companies can now overcome challenges and provide quick, efficient solutions. Make the UAE the first in AI investments in various sectors. Another 2018 study by McKinsey projects that by 2030, 45% of existing work in the Middle East has the potential of being automated.
Machine Learning
Machine Learning has evolved from the study of computational learning theory and pattern recognition and has become a technology innovation that allows businesses to evaluate and make better decisions. It will enable the procurement businesses to predict outcomes and results based on models and algorithms.
It helps automate collecting, cleaning, classifying, and analyzing expenditure data in an organization. This is the key to identifying savings or paths to greater efficiency.
“A procurement VPA can improve the end-user experience of traditional procurement tools and increase spending under management by guiding people to the correct purchasing tool,” said Magnus Bergfors, research director at Gartner. “A CPA can provide summaries, recommendations, and advice in everything from supplier assessments and performance management, to risk management and compliance.”
Digital Track and Trace of Logistics
In the supply chain industry, track and trace identify the past and present locations of all product inventory and its entire product history. This technology enables a product’s (current) status to be captured through the value chain and to identify and verify its path retrospectively. Digital track and trace help businesses manage all operations and oversee execution at all levels; this means more proximity and less assumption of executed results leaves some to no margin of error.
The Future of Procurement
As digital supply chain transformation takes the lead in the UAE, businesses need to strategically re-evaluate to harness new technologies to become more agile and resilient. Sourcing and procurement are crucial for supply chain acceleration, increasing business value. Given the changing world, sourcing and procurement play an integral role in unlocking new value from the supply base and protecting the organization from future disruption.
Moglix is an Asia-based B2B commerce company specializing in the e-procurement of industrial products. We provide digital procurement and supply chain solutions across industries, such as FMCG, Healthcare, Construction, Oil & Gas, Metal & Mining among others. To know how your enterprise can unlock the benefits of new-age technology-driven procurement and supply chain solutions from Moglix, visit https://business.moglix.ae/contact-us/
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