Gaining control over your procurement processes will impact your company’s profitability, but first you have to find those profits and/or losses hiding in plain sight.
A recent article in Truckinginfo.com, “Profit Is Hiding in Dark Places” notes that an inability to truly track all spending may be causing fleets to miss out on opportunities to increase their bottom line. The basis for the article is an AmeriQuest Business Services survey of 2,000 respondents who self-identify as having some managerial or influential involvement with their company’s procurement process. A few of the responses should give any business pause.
20.4% of companies have no formal procurement processes in place
13.3% of respondents didn’t know if their company did or did not have a procurement process in place
15% didn’t know which department managed their procurement process
This last number is amazing when you consider that the respondents identify themselves as directly involved in the procurement process. This lack of knowledge (which leads to a lack of control) is what Dr. Reggie Peterson, Director of Indirect Processing for AmeriQuest Business Services terms “dark purchasing.” If you don’t know where your expenditures are going, how can you control your company’s spend?
Where this lack of control is most prevalent, according to Peterson, is the area of indirect procurement, those items that are not directly related to a company’s core business but are absolutely essential for day-to-day operations. Some of these are office supplies, cleaning products, MRO supplies, etc. Because they are considered small ticket items and because purchasing of these products is often decentralized, companies lose track of the overall cost.
Dark purchasing exists when procurement processes are lacking or are not followed. Sometimes it comes from purchases made with unapproved vendors; sometimes it’s a result of unnecessary purchases made, essentially, “in the dark,” with no knowledge of what has already been purchased.
If you think these costs don’t add up, realize that it’s estimated that 15-40% of a company’s operating costs can fall under the category of indirect spend. In the article, Peterson notes, “You will scrutinize large expenditures but may not pay too much attention to a bill for $6. But if you have 1,000 people spending $6 with no oversight, it adds up quickly.”
The answer is to develop a consistent procurement process with controls in place; one that is followed by all of the stakeholders that may be involved. It’s also essential to implement an indirect spend program that will give you, not just control, but also 24/7 real-time visibility into your company’s indirect spend.
Read the full article to see if your company may be making too many purchase “in the dark.”