Indirect Material: Outsourced or Internally managed?

I’ve often said- There are things that I could do and don’t. Why? Because there are experts, and not being an expert, I will likely benefit by having the expert do it. 

Example: Taxes and changing oil

Yes, there are tax apps/programs that one can purchase and use as a plug and play to get your yearly tax assessment accomplished, but are you truly getting the benefit of a tax expert reviewing your strategy and the potential for a better option or plan. Are you comfortable knowing that if you made an error you can recover from it without the headache of an audit? Are you really getting the most in return, given all the tax laws (and the changes yearly), that are available?

Yes, I know how to and am capable of changing the oil in most of the engines in my garage, but….

Do I do all the checks they do every time? Do I get the same undercarriage review/inspection they do? What do you do with the old oil and the mess?

And the final question I have to ask myself is- Do I have the time to do these things, with the same amount of expertize as the experts, in the course of the day (while managing the family dynamic)?

These same type of questions can be asked of the group in charge of managing the Indirect Material at a manufacturing location. And, while no doubt the effort would be to answer the question positively, when you look at the details you’ll get a clear picture of whether the spend has a focused effort or is a secondary concern.

The comparison may look something like this

An expert will have:

  • An annual cost savings goal/target of somewhere between 10 and 15% on overall spend, including P2P, Inventory reductions, product performance.
  • An Excess and Obsolete plan that should ultimately yield near $0 in E & O, by incorporating Demand forecasting, performance metrics, and PFEP (Plan For Every Part).
  • A Warranty and Repair program that yields every opportunity to have a part repaired under warranty by knowing what parts have warranties, and the details on each.
  • A vendor base relationship that can produce multiple options for any given part, and provide the competitive opportunity to bring the best performing product at the best price for the application.
  • A robust ERP system specific to Indirect material management that can continuously track inbound, usage, product and prices, and report in multiple functional aspects to enable its team to perform the analytics necessary to maintain a strong performing system.
  • Have the tools and capabilities to manage any cost impactors and keep production operational 24/7, while insuring the costs of the program and its personnel are offset with savings and reductions to spend.

In reality, the impact to bottom line profits is negative in most all internally managed Indirect material programs, due in part to the fact that most of the afore mentioned metrics are not able to be achieved as a result of daily/required duties. The longer they go untouched, the larger the negative impact to profit.

While there are some companies that have a decent control of Indirect spend, their core competency is focused on manufacturing the product that put them in business. We all know that is a full time job PLUS most days, so its little wonder the indirect group is secondary. But, at a point in time, when you put pen and paper to the annual spend and costs associated, you can get a real good feel for whether you should be talking to an expert, or changing your own oil.

 

Spence Webb
Business Development Manager
Email: SWebb@ValuePointSolutions.com
Mobile: (989) 295-0422