Indirect Material – “Spending Less and Getting More”

How is it possible, for a given level of “transactional usage”, one could make the statement that they can reduce the “spend” and actually provide a more efficient, economic Indirect Material environment by “Outsourcing” to an Integrated Third Party Indirect Material Manager (3PIMM)?

The answer to this question is a simple one, however you need to stratify the details included in the question and the answer. Also understand, there are many focus points (opportunities) to reducing spend and saving money within the Indirect world. Places like;

Purchase Orders. There is a lot of money spent in cutting Purchase Orders. Arguably, most companies would agree that a po costs about +/- $100 to issue. Think about how many (Indirect Purchase Orders) are cut on a monthly basis, and imagine the cost savings impact available if you were to reduce this cost by better rationalizing data driven ACTUAL need v perceived need.

P2P evaluation. By evaluating the spend in the Indirect category, and using some specific tools (the purchasing world has many) to provide aggregation, actual defined usage, needs v wants, cost transparency, and factor this intel against lead/delivery times you can take advantage of the opportunity to condense spend at a purchasing level.

Product Performance Comparisons. By using an independent Integrator (as opposed to a distributor integrator) you can be afforded the environment to test every manufacturer, the best of the best, discover optimal performance at optimal pricing. By finding products that perform better and last longer, you can expect huge savings where it matters most-out on the manufacturing floor.

Inventory Management. Proper planning and implementation of processes and procedures, disbursement strategies, POU facilities (vending, kitting, 2bin, etc.) will provide reductions in spend by way of “straight-lining” inventory from stores to end user. Keeping people and machines producing products, not looking for the product and/parts they need provides huge uptime savings and increased throughput on direct side profit generating products.

E & O elimination. If you’re not managing the usage metrics designed to control the constantly changing usage of inventory, you will find yourself trying to “catch up” on inventory that’s been sitting on shelves too long. You can find significant spend reductions and cost avoidances by staying on top of production schedules, forecast planning and its impact to inventory. This is a quiet killer of profit dollars, and is a “must do” for any qualified inventory manager.

Warranty and Repair. It’s not uncommon that warranty claims for product go unused. Day to day operations, multi-responsibility personnel, and the like are enough for the untrained to sidestep the claim opportunity, much less crisis management. These products first need to be coded in the system as warranty available, then when warranty submission time comes the product should be tagged and segregated, obtain RGA, etc. Without a focus on this, the opportunity gets missed…and it adds up quick.

Multi Location Look Across/Commonize. With multiple locations, it is imperative that inventory (critical spares, machine parts, etc. Not high volume PPE) be available for disbursement in 24 hours across the continental US. Without this capability, inventory dollars skyrocket with duplicate inventory, E & O grows, return ability is limited, and the system gets bogged down with unnecessary transactional weight. A qualified Independent 3PIMM knows how to manage this aspect as part of the service offering.

Process implementations. Material mapping and flow, Product requisition approval, RFID, Employee Swipe card, etc. Also, cost savings programs like glove/sleeve/bib rewash/reuse saves up to 80% of new expense. These type programs are a must for any successful Indirect Material campaign.

Focused Reporting Structures. It is critically important to understand the spend, by (whom), charged to (where), what frequency, etc. Not only for a clear path understanding of accountability, but also for incorporating the details into forecasting, project costing, budget management and control and the like. It is equally important to have the necessary reporting strategies provided exactly when they are needed, and to whom they are needed.  Without the proper and timely reporting, the success of the client/3PIMM program will never achieve its potential.

It’s no longer acceptable in this competitive world to allow Indirect Material to be an expense to profit. Your direct product profit margin can be increased by the same factor you currently charge to the cost of manufacturing for Indirect.

If your current charge is near 2.5% to manufacturing for Indirect, your actual impact to profit could be a significant improvement as a result of outsourcing your Indirect Material Management.

When incorporating the tools and strategies of an Independent (Pure) Integrator, who’s core competency is the proper and effective management of Indirect Material, you CAN plan for and achieve reductions in spend and inventory values while increasing performance and value in the Indirect Material environment.

Spence Webb
Business Development Manager
Mobile: (989) 295-0422