Indirect purchasing

Cost optimization for companies

Due to the frequent lack of attention for indirect costs, considerable saving potentials can be generated in this area. Most purchasing departments are already so busy due to the central procurement goods that the overhead costs of the companies are ignored. In some companies, these are not subject of purchasing at all, but are managed by other departments (accounting, scheduling, assistants, etc.).

This often leads to unfavorable contract renewals without having analyzed the current conditions and service providers. In contrast to the central procurement goods, there are many suitable partners for overhead costs topics and above all specified and constant product/service requirements.

Through a comprehensive analysis, the use of necessary procurement instruments and the selection of right partners, savings in the double-digit percentage range can be achieved. Optimization approaches for some overhead cost areas are described below.

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Theodor Uljanov

Partner

T +49 211 875 453 23

For office supplies it is worthwhile to take a look at the process at first. In the past few years, ordering via a web shop (e.g. weekly collective orders via a central office) has become very widespread. To make this really worthwhile employees often put together packages and thereby fill also the office besides the cash registers of the suppliers. Nowadays, for example, the ideal buyer uses „open access”. The office materials are stored in an open cabinet and replenished by the C article supplier – usually even in conjunction with a VMI (Vendor Management Inventory) process. Thus every employee has constant access to the necessary utensils and a hoarding of materials is avoided. There is also considerable potential for savings in the area of printers and toners. For example through outsourcing of all printers. In this case you pay more per printed page. The supplier takes over the toner management, so that each toner is clearly assigned to a printer. The service provider ensures the efficiency of the toner and that the toner is actually completely utilized. Depending on the former procurement process and the existing conditions, savings of up to 30 percent can be generated.
When it comes to travel costs, the “cost driver” flights are often the only considered costs and – without taking into account the sometimes enormous personal effort, i.e. process costs – everyone tries to book the “cheapest” flight via various internet platforms. An optimized solution can be the use of a “self-booking tool” in cooperation with a larger travel agency. Besides the consideration of possible travel guidelines, the specification for booking the cheapest route can also be made. Another possibility is, for example, the deposit of prices of various car rental providers or hotel chains. In addition to the significantly optimized process costs, you benefit from the usually better conditions of travel agencies with airlines. Further savings can be achieved, for example, through parallel cooperation with credit card institutions. In this case, the traveler would be insured via credit card and at the end of the year, money will also be refunded. Altogether, travel costs can be reduced by between 12 and 25 percent.
Telephony is an area in which, if considered at all, the sight for actual requirements often is lost. For example, it should be considered whether an employee who has a company mobile phone also needs a landline, when technical equipment and the right tariff selection give the possibility to make calls at landline rates – when on the company premises. An ideal interaction between the right scope of services, the most suitable telecommunications company and the appropriate tariffs can generate annual savings of up to 40 percent.
In case of cleaning services, the range of services often expands unnoticed over the years. By reassessing the scope of services, reviewing existing conditions and billing bases, savings in the double-digit percentage range can be achieved.
There are various approaches to generate savings in the area of workwear. Especially in production plants it is often difficult to estimate the demand and thus the required quantities. This can be compared with an automated system. Each employee receives a fixed annual budget for the PPE (personal protective equipment) according to his or her workplace. Either a “dispenser system” (comparable to a snack machine) is provided, or fixed dispensing times and locations are specified. In addition to average savings of approx. 20 percent, any kind of abuse is also avoided.
A sensitive area that is almost never settled in purchasing is software licenses. Expertise is required here as well as tactfulness, which implies a good interaction between purchasing and IT department. Basically, it is crucial here: “Everything is possible – nothing is mandatory”. It can also be reasonably negotiated with the major players, because they need the market share and fear “open source” products (free software for download and use) as a competitor. Therefore, the goal should not always be the single price of the license, but also the degree of licensing. After all, even a software provider has to deal with the fact that companies are changing and growing or are shrinking in certain areas.
The area of car pool is a very emotional area, as the focus is always on cars. But there is as well potential that can be identified in a first step by defining a “car policy”. The potential is not only in the procurement of vehicles, but very often in their management. Here it must be determined whether a so-called “operative leasing”, which covers maintenance costs, tires and all repair costs, does not make sense. In the area of fuel cards, it should also be checked how high the discount and refund is when certain sales are achieved. Here it often makes sense to compare the conditions of the fuel card with the conditions of the credit cards. Sometimes it is better for employees to pay their fuel bills with company credit cards than to use fuel cards. Often it is sufficient to limit the car pool to certain manufacturer brands in order to massively increase the discounts in procurement.
In the area of disposal, massive savings are often possible, as these are strongly influenced by raw material costs. A tender should be issued at least every two years, so that one can also benefit from developments and consolidations on the market. Usually one already experiences a first “aha-experience” during the preparation of the tender documents, since many people in the company are not aware of which substances are generated as waste. Under certain circumstances, the waste disposed may also be interesting to own suppliers. An exchange cycle can save a lot of money in this case. A complete analysis and fluoroscopy of the disposal area with consideration of the disposal containers, transport companions, collection frequencies, etc. can reveal potentials of between 10 and 30 percent.

In summary, practice shows that considerable savings can be achieved in almost all areas of indirect costs (in addition to the above mentioned also further such as insurance, energy, etc.) through detailed and strategic processing.

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