The larger a business or organization grows, the more resources it takes to keep the organization supplied. Indirect materials are often difficult to track since they are not accounted for in COGS. Indirect spend is often controlled by multiple people within an organization.
Janitorial supplies, facilities and maintenance replacement costs, office supplies, and groundskeeping all require a budget for supplies and materials that are not directly attached to the cost of doing business. In a larger organization, these costs can run in the millions.
The Federal Government’s own $600 Million indirect spend budget can dwarf many large businesses. But, creating systems to manage your small spend items often seems like too much work, and it can be. If you create a system from scratch, you will be straining at small budgetary items and losing energy for income-generating activities.
A proper procurement system helps management and executives work together to reduce indirect spend and manage quality control for supplies. The right procurement system gives you the ability to manage multiple sources and substitute one item in the shopping cart for another without extensive labor.
How Substitutes Save on Indirect Spend
Different supplies at the same quality cost different amounts. Perhaps a manufacturer or wholesaler has offered something at a sale price. Perhaps the source materials cost less, for a variety of reasons. For your organization, the importance is not why the price is different, but the fact that both items meet your standard of quality and one is less expensive.
This is where a spend management system like eLink™ Gateway sets your procurement process apart. If an employee logs into the supplies purchasing system, the system will direct them to the desired products.
Good procurement software will automate much of your organizational spending. Spend management systems adjust for changing prices as your team researches and negotiates prices with suppliers. Besides quickly adjusting to your negotiated prices, the software will also generate reports for spend management.
Spend reports can include line item detail or a general overview of the cost savings from substituting the right products for the costlier ones. Indirect supplies are often controlled at various levels of an organization; traditional ERP and procurement platforms miss the cost savings of an indirect spend management process.
Supplier Inventory Management
What if a supplier of your preferred item suddenly changes their price? What if they do not update their punchout catalog? These are questions that often throw off a traditional supplies management system. Since indirect materials are not always on the radar of your procurement staff, sudden changes can cause significant cost increases to your business.
Spend management software implementation should include customization with the vendors to your organization. Since you are working on price adjustments for volume, it makes sense to include those relationships in a software management solution. Good software will pull data from the vendors punch out catalog or integrate with their backend so that any price adjustments on the vendors part automatically trigger a response from your supplies management team.
With integrated spend management systems, you will be able to quickly substitute different products depending on your relationships with vendors.
Focus on First Things First
Rather than spending time and energy tracking down suppliers, managing price, and dealing with quality, a good indirect spend management plan will do most of the busy work automatically. Integrating the best of modern big data analytics, collaborative software, and industry-leading implementation, a modern Software as a Service (SaaS) designed for large and growing medium-sized organizations will not only save money through substitutions. A good SaaS will decrease the amount of time your staff and management teams spend on tracking and choosing materials for purchase.
While there are many software systems that pull catalogs from all the indirect materials vendors, Value Innovation Tech‘s catalog management software is the only software that gives you control over purchase decisions throughout your organization. If an employee needs to order 10 AA batteries, and you have an agreement with retailer A to provide discounted Duracell batteries but they choose Energizer for personal preference, our software will substitute the desired product. This will save your business money and reduce the headaches associated with filling out various requisition forms and asking management to approve purchase decisions.
If you do not need to make a substitution mandatory, the software will show employees lesser priced variants. Thus, if an employee does not need to buy a certain name brand of paper towel and they see a similar towel with the same machine specifications for a 25% reduction in price, they will be able to make that decision.
For personalized information or to schedule a demo, give us a call at 704-296-2987 or visit valueinnovationtech.com. To discover more about our industry-leading software and how it can help your business save money on indirect materials spend or how it can help you reach your customers with e-commerce, please visit our blog.