Corporate and economic consolidation and globalization has afforded extraordinary opportunities for indirect procurement. However, not all of these types of procurement implementations have gone smoothly. The procurement challenges faced by corporations have resulted in many specialists recommending a commodity approach to ensure that sustainable and viable returns occur on the varied procurement initiatives available.
The indirect procurement process includes company “operating resources” that businesses might purchase to facilitate operations. A wide range of services and goods is involved, from standardized items such as office supplies to more costly products such as substantial equipment or services like consulting.
Companies usually secure direct, large purchases of strategic products as part of a structured multi-million dollar transaction, upon negotiation with suppliers over months long negotiation. Repeat business and industry trends assist companies in projecting discounts and purchase volumes.
Over the last decade, the popular mantra for companies has been to drive down costs, while sustaining the working business model. Since the focus of companies has been on efficient and effective management, diversification strategies have been pushed. The heavy emphasis on cost reduction, while maintaining quality, has garnered much more attention than in past decades.
The main advantage with cost reduction is the direct contribution to a company’s bottom line and the resultant increase in business profitability. In the past, organizations focused typically on material costs, which does not cover a company’s entire spend budget.
Businesses have attempted to rationalize their current vendor base level which has resulted in mutual collaboration increase. Planning and collaboration activities focus on organizing data and arranging for quick payment of items received. Information technology commerce has been instrumental in enabling and expanding this critical business operations process.
In past years, indirect procurement was affected by Existing Enterprise Resource Planning (ERP) vendors that successfully addressed direct material issues. Demand projection of low hierarchy items increased through the expansion of Bill of Materials (BOM) usage and the Material Requirements Planning (MRP) engine. Through these tracking systems, ERP solutions was able to ensure that suppliers provided accurate orders over a 3-6 month time span (medium plan horizon) that was based upon aggregate order projections.
Generally, ERP solutions may accommodate large numbers of transaction for Purchase Orders (POs), Receipts and Payments. An appropriately designed technical architecture of a company’s exiting solutions usually facilitates the ability to maintain the largest transaction volumes possible for direct materials.