Based on the importance of a product on the operating result as well as the risks of delivery, products and thus suppliers in the Kraljic matrix can be divided into strategic products, bottleneck products, routine products (non-critical items) and leverage products. For each category, specific strategies must be developed and implemented in the procurement process.
Procurement of routine and bottleneck products tends to be moderately or not organized.
Procurement of routine products
Routine and bottleneck products are often referred to as indirect procurement. These products (and services) are not used for the core business of a company or institution, but rather support primary activities. Think facility, finance and IT.
The procurement of these products is also referred to as long tail spend. Because these products are typically ordered decentrally from a relatively large number of suppliers and the number of orders is also large, while the total value of indirect purchasing is relatively low. There are usually no preferred suppliers, contracts and purchase orders. Unsurprisingly, the hidden cost of indirect procurement is much greater than direct spend.
Decentralized under management
The procurement process of routine products is usually organized at the departmental level. After all, these products are often ordered but represent a low value. The hidden costs arise because the process of ordering and certainly handling is quite time-consuming. Moreover, purchasing prices and conditions are not sharply examined and an organization is not in good standing with respect to compliance.
Ideally, indirect spend should remain decentralized, but in a regulated manner. Thus, the supplier base should be rationalized into preferred suppliers, with whom agreements are made and recorded in contracts. And employees can then place their own orders, provided they fall within the agreements.
That sounds like one hell of an undertaking that doesn't outweigh the overall value of indirect spend. However, a centralized and automated procurement platform offers a solution.
Automation of procurement
To decentralize and regulate the indirect purchasing process, a central purchasing platform is necessary. A corporate webshop where employees themselves can order products for their daily work. In a way similar to ordering a product in a webshop for personal purposes.
Key benefits:
- Purchasing advantage: Automation of the purchasing process keeps orders within the framework of agreements with preferred suppliers and can therefore be more favorable.
- Compliance: Automation automatically records orders into purchase orders, making all orders fully transparent and retrievable.
- Authorization: Through automation of the purchasing process, orders are approved by budget holders and invoices are automatically matched with purchase orders.
Basware Purchase
Basware offers a solution for managing an organization's indirect procurement process in a decentralized and regulated manner. Basware Purchase provides employees with a "corporate web shop" in which they can order products and services from preferred suppliers.
These are added to the webshop in different ways:
- E-Catalogs: let vendors upload and manage catalogs themselves.
- Punch-out: order takes place on the e-commerce environment of a preferred supplier, after which the order is pulled in to the "corporate webshop" through a cXML link.
- Order Form
Employees are guided for their purchasing by predefined budgets and by approval of budget holders. When Basware Purchase is also used for invoice processing , invoices can be automatically matched with the PO.
Learn more about Basware Purchase, view an instant demonstration of our solution or contact us.
