Controlling

« rogue purchases »A major factor in competitiveness

for UK companies

Brigitte AuffretAssociateGeneral Director

Pierre-Olivier BrialAssociate General Director

Xavier GuichardGeneral Director

The General Directors of Manutan share their insights

RECURRING PURCHASES Highly foreseeable

Relatively small number of references

“ROGUE” PURCHASES Low recurrence

Multiple references

80% 80%

of purchase volumes

20%

of admin costs

of admin costs

20% of purchase

volumes

After optimising their strategic purchases, for the last ten years companies have been focusing on their non-strategic purchasing, also known as indirect purchases. We’re talking about the products and services they need in order to do business, but which do not directly involve their core services. Within this huge category, there is a family of purchases that have seen practically no optimisation: the “ad-hoc” purchases, which represent 20% of the volume of indirect spend. This area can be so unstructured that they are often referred to as “rogue” purchases. They are however full of potential efficiencies if they are organised using an appropriate method....

There’s a hidden goldmine in indirect purchases

Considerable potential for savings

Companies with a Purchasing Department have often standardised the recurring portion of their indirect purchasing, which, in particular, can include travel costs, cleaning services, restaurants, and sometimes tools, personal protective equipment, IT hardware, and office supplies.

You might think this type of purchase is insignificant compared to high volume recurring purchases such as office supplies. However, while they may represent only 20% of total spend, they contain no less than 80% of all administrative costs associated with indirect purchases.

Behind this high number of sporadically ordered products, there are dozens of suppliers to generate and manage, hundreds of invoices to process and thousands of deliveries to receive. It has been calculated that managing one supplier costs nearly £1500 and processing one invoice costs between £60 and £120.

As an example, a company with a £250 million sales turnover, that has four locations in the UK, may have up to 1000 suppliers with less than 10 transactions per supplier actually completed!

INDIRECT PURCHASES

THE PROPORTIONS OF INDIRECT PURCHASES

Many buyers are aware of these stakes, and want to take action but they often meet opposition internally as people think it will be a complicated headache to rein in these “rogue” purchases. What’s needed is the creation of a validation process and accounting controls that are responsive enough to tackle the unforeseen head-on.

In our experience, fewer than 10% of UK companies have implemented a method for optimising their “rogue” purchases. In most cases there is no specific team given ownership. Every product needed results in the creation of a new supplier and a different purchasing process. These purchases totally escape any purchase manager’s control, especially in companies with multiple locations. This represents a very large loss in terms of time and money, and therefore in competitiveness.

Controlling “rogue” purchases A major factor in competitiveness for UK companies

Spend in these areas has often been reduced down to a small number of suppliers, with organised requests for tenders and internal processes that have been implemented to reduce costs. We could say that such purchases have been optimised. Nevertheless, there is a real opportunity for savings

that has remained unexploited, which we call “ad hoc” or “rogue” purchases. These are products that companies require in an unplanned way to meet their needs on a daily basis. This could mean, for example, salt for the car park if it snows, additional equipment for temps, or urgent additional shelving to store an important order in a warehouse. Such “ad

hoc” purchases can often involve every department in a company (office, warehouse, general services, factory...) and include both consumable supplies and equipment purchases. Their purchase is often made in an urgent way, and so they can escape the usual departmental checks and balances. This is why they are so often called “rogue” purchases.

20%of the volume of indirect

purchases are “rogue”

recurring purchasesservices

maintenance

supplies

travel

ROGUE

PURCHASES

(others)

›The strength and flexibility of digital…

Digital allows the implementation of catalogues with a practically unlimited range of products. This is a pre-requisite if you want to take control of indirect purchasing and replace multiple suppliers with one principal supplier, through who you can focus your volumes and therefore negotiate an overall discount. To avoid turning to a different supplier for each item, it’s necessary for users to be able to find all their desired products in one place.

Digital, by eliminating the constraints of a store or catalogue, allows you to have millions of references.It also allows you to ensure rapid delivery of products which, we should remember, are often ordered and

The winning equation: digital tools supported by a communication strategy

The possible solutions

The good news is there are now solutions that completely change the hand you’ve been dealt. At Manutan we have seen that customers who have implemented solutions for this have made savings of 30 to 50% of their total “rogue” purchase spend. If all UK companies over 250 employees took similar steps,

we might be looking at potential savings of millions of Pounds. Every Pound saved on indirect purchases has a direct impact on the company’s net result. The substantial savings achieved could be invested to help boost the national economy!

Savings of 30 to 50%can be achieved in the area of “rogue” purchases

These solutions are principally built on the strength and flexibility of digital resources along with a communication strategy that encourages participation.

required at short notice! Thanks to the internet, over the last few years, distributors have been able to implement automated connections with their suppliers.

These systems not only allow faster replenishment of their stock levels, but also direct supplier-controlled delivery for products that can be very cumbersome or which have much lower demand levels.

The revolution brought about by these solutions also provides a method to control the internal manage-ment of the ordering process.

Time savings Decreased costs

- 30%- 50%to

+

From order placing to invoicing, everything can now go paperless. Simple and flexible management systems for authorisations allow you to delegate order placing directly to users, while keeping them within a framework. The users are able to react more quickly and efficiently while buyers can finally take real control of their purchases. Most importantly, this provides them with access to a complete reporting system, offering total visibility of consumption. They are then

able to see what is really ordered and undertake an optimisation project, which will undoubtedly be a source of additional gains.

It has been observed that reporting on consumption levels for all locations allows purchasers to see that some products are actually ordered in a quite irregular way. They can then “standardise” certain sources and negotiate better prices. They can also work on the supply management process.

Multiple Suppliers Multiple Order Processes = Higher Administrative Costs

1 Standard supplier 1 Supplier + Digital Processes = Financial and Administrative Gains

The last few years have seen the emergence of vending vachines, like automated drinks dispensers, that make the most frequently used products available to users directly at the production site. Users simply select the desired product with their personalised magnetic card. This translates immediately into a 30% decrease in consumption levels as a result of better controls.

Next you add in the time savings, since it is no longer necessary to go somewhere to get the product from a central store.

Finally, you see an improvement in the cash situation thanks to decreased stock levels, as the machine is connected to a supplier IT system that can resupply daily or weekly as needed.

Customer

supplier 1

de gestion

supplier 2

supplier 3

supplier ...

or another order channel

Customer Standard suppliers

E-procurement

AutomatedDistributor

PaperlessInvoices

Ultimately, a triple gain:economic, environmental, and social

A Customer Case Study

For over ten years, Manutan has been helping companies decrease the costs of “rogue” purchases. Digital solutions, still very complex a short while ago, are now flexible and headache free. They have become accessible to every kind of company. Combined with an on the ground communication strategy, the gains are considerable in terms of economics as you see an average decrease in costs for these purchases of 30 to 50%.

The benefits are also environmental in nature as the move to digital drastically decreases paper consumption and often optimises deliveries. Lastly, the advantages are also social in nature because savings of costs and time can be reinvested in higher added value tasks for buyers and/or in the purchase of higher quality products for users.

Brigitte AuffretAssociateGeneral Director

Pierre-Olivier BrialAssociate General Director

Xavier GuichardGeneral Director

Despite their power and ease of use, it is not enough to simply deploy these digital solutions for the plan to take control of “rogue” purchases to work. You also need to internally manage their implementation. As with any “centralisation” move, resistance to change can emerge. Introduce the solution too fast and you might provoke rejection from users who present multiple excuses why they aren’t going to use it (pointing for example to a locally purchased product at a lower price, or a great relationship with a local supplier...).

This is why Purchasing Management not only needs the support of the Directors but especially a distribution partner that can come on site and inform every company location (factory, head office, logistics centre....) and different audiences (purchasers, stock controllers, users...), on the nature of the contracts and the associated benefits. A partner working closely with local users who can give them real service guarantees. They then realise that they have a quality relationship, that not only makes use of streamlined processes but also saves them a great deal of time.

1 ● Streamlining supplier numbers

• Industrial Company – 15,000 employees• 50 suppliers for “rogue” purchases• 3,870 orders – with a value of £283,434

› ... supported by a communication strategy to encourage participation

OVERALL

invoice

90%paperless invoices

Going from 50 to 5 suppliers

90%of orderspaperless

= savings of

£ 116,780

= savings of£ 18,375

= savings of£ 20,312

2 ● Reduction in orders

3 ● Reduction in invoices

Initial costs for client:

£ 283,434

Final cost after streamlining andE-procurement

integration:

£ 132,128

SAVINGS ACHIEVED:

£ 151,305

Purchasing Director

Finance Director

Local Purchaser

Logistic Buyer

User

IT Director

Key Account Manager

Regional Account Manager

Sales Account Manager

E-procurement Support /Electronic Solutions

CUSTOMER

Client Fournisseur de référence

E-procurement

Distributeur automatique

Factures dématérialisées

REFERENCE SUPPLIER

Client Fournisseur de référence

E-procurement

Distributeur automatique

Factures dématérialisées

Example of a communication strategy

Contact us

› If you’d like to learn more about the savings you could make on your“rogue” purchases thanks to Manutan’s solutions, contact:

About the Manutan Group

The Manutan Group is a major player in multi-channel B to B distribution in Europe. A family business founded in 1966, and a pioneer in mail order sales, it has 2 200 employees in Europe, spread out in 25 branches in 17 countries. The company provides its million European customers a dynamic offer covering all business and local authority needs, a storage capacity of 190,000m2, value added services, and the latest e-business solutions. In 2015/2016, the Manutan group achieved revenues of over 683 M euros.

Alan Smith07831 542080Alan.Smith@manutan.co.uk

To discover more about Manutan UK and the products and services we offer please visit: manutan.com/blog