The invisible “costs” of a bad procurement process in indirect procurement

Poor procurement processes can significantly damage companies. While thousands of euros have been invested in ERP systems, BI tools and other technical solutions for direct procurement, indirect procurement has been simply ignored. 

 

In addition to the obvious costs incurred by the company, there are also many hidden costs. These are, on the one hand, the costs from indirect purchasing and, on the other hand, the process costs. These are higher than expected in every company, mostly due to inefficiencies, lack of digitalization and lack of standardization.

 

Particularly indirect procurement and procurement by employees whose core task is not to order, the whole time is brimming with inefficiencies:

 

On average, an order costs 115 euros. At the same time, the purchasing volume for the indirect requirements of companies amounts to approximately 50 million euros per year, with an average of 180,000 orders. These figures alone show that there is great potential in the area of indirect procurement. However, many companies fail to realize it.

 

It is not only the high costs that pose a problem for a company. Non-existent or inadequate digital processes often threaten audit security. After a certain period of time, it is usually difficult to track what and when was approved by whom, because this is not or only partially documented.

 

ERP systems, through which the direct purchasing processes run, are of great importance for companies. However, most systems are only partly user-friendly for employees who do not work with them on a daily basis. The average employee of a German medium-sized company places 2,6 orders per year. Due to the number of orders and the complexity of the systems, the issue arises that users have an increased training effort, which typically repeats several times. The effort for training is mainly not even considered in the costs for the system and leads to large follow-up expenses. Furthermore, it is also a constant balancing act whether one has to train people for, let’s say, five orders a year or whether one schedules the existing procurement department to be the company’s “purchasing typing machine”.

 

Cooperation and communication between different departments is enormously hampered by a non-structured and poorly managed process, which only causes stress among employees. If one department does not have an overview of what has been ordered by another department, this leads to disruptions in the system and misunderstandings between employees in the company, which generally has a negative impact on the smooth functioning of processes.

 

That’s why we asked ourselves what benefits does a digital purchasing process bring and how these can be achieved.

What are the benefits of a unified, digital purchasing process?

• Significant reduction in corporate costs 
• Reduction of costs per order by up to 40%
• Audit-proof processes  
• Reduction of errors and lead times 
• Support for digitalization of the entire company by focusing on strategic purchasing opportunities of the procurement department
• Raising of procurement potentials in the indirect area, which were previously unknown due to decentralized ordering

 

These are some advantages of a unified digital purchasing process that emerged for us through in-depth analysis. Therefore, the next question for us was:

 

How can all these benefits be achieved?

The most important aspect in achieving these advantages is the right tool. First and foremost, it must be clear what exactly your own use cases and requirements are. Then, we’ve created an overview of how to implement a digital purchasing process that works. 

 

• B2B e-commerce offers that make it easier for employees to place orders, such as Amazon, Mercateo 
• Internal catalogs with standardized, recurring items based on negotiated contracts
• Simple approval workflows
• Efficient invoice management with just a few clicks 
• Analyses of key KPIs
• Proper budget planning and real-time spend management
• Native integrations with other systems (e.g. Slack, Teams)

Founded in 2021, Hivebuy takes the exact benefits of proven solutions, such as auditability and transparency, but brings them into an intuitive solution that can be rolled out to organizations within a week with no training or implementation required.

You still have questions?

In a personal meeting, we can directly clarify questions and show you how Hivebuy can take your purchasing to the next level. Request a demo now.

_______

Literature: Holger Müller & Bollini (2017). Mercateo Studie – in Zusammenarbeit mit der HTWK Leipzig. Indirekter Einkauf im Fokus: Zwischen Einsparpotenzial und Zukunftschancen – https://www.mercateo.com/procure/wp-content/uploads/2017/03/Mercateo-Studie_Indirekter-Einkauf-im-Fokus.pdf