Not all outsourced procurement or purchasing is the same and can be tackled by the same systems and approaches. Fundamentally there are two different types of procurement – direct materials and indirect materials.
Direct materials are services or commodities, which a business purchases, that form part of a finished product.
Conversely, Indirect material (often called Goods Not For Resale) involves any service or commodity, which a business purchases, that does not form part of a finished product, such as MRO (Maintenance, Repair and Operations) replacement parts.
Indirect materials for other areas such as ORM (Operations Resource Management – travel services, office products including furniture, laptops, pencils and paper) tend to be bought in high volumes at fairly low in value per individual item, whilst MRO materials tend to be bought in low volumes at often higher values.
As indirect material procurement will often account for a substantial amount portion of a company’s purchasing, any savings made in this area have the potential to deliver significant bottom line contribution.
ORM and MRO materials
The distinction between ORM and MRO is a clear one. Whilst ORM purchasing is important to the longer term efficiency of an organisation, it lacks the time- and mission-criticality of MRO procurement. For instance, the delay in acquiring a replacement production line part involves a far greater risk than the delay in receiving a consignment of stationery.
Why choose IESA?
- 1IESA has extensive expertise in outsourced indirect material procurement, understands the complexities and pitfalls of in-house management and use this knowledge to define the tried and tested approach of our specialist teams.
- 2The cost of indirect materials often begins to spiral as the labour intensity grows, operations become more fragmented and so-called ‘maverick buying’ proliferates.
- 3The lower value, repetitive nature of indirect material ordering means that it can account for as much has 50% of a purchasing department’s workload, a grossly disproportionate investment of time, manpower and money. Over time, organisations supplement and augment their processes, resulting in ever-expanding bureaucracies and red tape, turning potentially simple purchasing tasks into convoluted protocols requiring multiple sign offs and mountains of paperwork.
- 4IESA can analyse and identify bottlenecks of this kind and introduce streamlined and efficient process changes.
- 5‘Maverick buying’ describes the propensity of employees to ignore protocols and guidelines when purchasing indirect materials – rather than using approved suppliers or framework agreements. In large organisations, so-called maverick buying can account for as much as 45% of all indirect procurement.
- 6By introducing new controls and streamlining clunky processes which were previously difficult to use, IESA can cut out maverick buying and make a huge difference to the indirect material procurement costs.
- 7Outsourcing indirect material procurement to IESA gives immediate access to the sort of expertise, experience and business intelligence which would otherwise take many years and a lot of money to acquire in-house, especially since the award-winning technology platform provides for complete end-to-end management, so driving greater control, compliance and therefore savings, which is why so many blue chip organisation have chosen to partner with IESA.
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