One way to reduce the cost of MRO procurement is to automate the process
Indirect costs are an inevitable part of procurement. But have you considered the time involved in researching products, checking availability, negotiating pricing and arranging delivery? Then there’s the time spent on seeking internal approval, issuing purchase orders and processing invoices and payments.
Alex Davies, Service Delivery Manager at RS Components, regularly sees this inefficient system in action. “The Chartered Institute of Procurement and Supply (CIPS) calculates that, across industry, the total process cost for each purchase order is £80,” he says. “Yet there are businesses raising hundreds – if not thousands – of purchase orders a year for low-value products and not really having any appreciation for this significant hidden cost.”
However, there are ways to drastically reduce this figure.
"There are businesses raising hundreds – if not thousands – of purchase orders a year for low-value products and not really having any appreciation for this significant hidden cost."Alex Davies, Service Delivery Manager, RS
By taking a holistic view of the indirect procurement process, RS can offer solutions that save quantifiable amounts of time – and, therefore, money. “We have a calculator that we use with customers,” says Davies. “Specialists in eCommerce will get right into the detail of their end-to-end procurement process, putting real timeframes and real costs into the calculator and producing a true cost to that company.” RS can then recommend tools such as its PurchasingManagerTM system, which reduces these costs. A well-known confectionery manufacturer, for example, saved more than £30,000 per annum in indirect procurement costs (the equivalent of 3.7 working weeks) when it adopted PurchasingManagerTM.
What is PurchasingManagerTM?
RS’s PurchasingManagerTM is a free, web-based order management tool that can dramatically streamline the buying process without having to invest in upgraded IT systems or software. It is a self-administered system that can be set up quickly and doesn’t require extensive staff training.
PurchasingManagerTM automates large sections of the purchasing process and allows staff to place their own orders, under specified controls, with a full suite of online management reports.
Davies regards PurchasingManagerTM as a flexible tool that meets the needs of a wide range of businesses. “It’s a versatile solution that can be installed in a small business, of maybe 10 employees, and provides a level of functionality that it wouldn’t otherwise have without significant investment in a large, costly, purchasing system,” he says. “It can operate at that smaller end of the market but can also be used in a large multiple-site business that has end users everywhere. The commonality is the challenge they face procuring low-value materials.”
"PurchasingManagerTM can operate at the smaller end of the market but can also be used in a large multiple-site business that has end users everywhere. The commonality is the challenge they face procuring low value materials."Alex Davies, Service Delivery Manager, RS
The benefits of PurchasingManagerTM
Davies is clear about the benefits of PurchasingManagerTM, observing that: “It provides quick access to more than 600,000 items at RS in a user-friendly way that removes many layers of process from a business’s operation.
“PurchasingManagerTM provides access to the RS website but with certain customisable controls, such as spend limits and approval mechanisms, built in. Users can also be required to select a cost centre, project code or ledger code. All of the data, up to 13 months’ worth of purchases, is available to view at any time, ultimately improving levels of control.”
There are also enhanced reporting capabilities built in to PurchasingManagerTM that enable users to analyse spending. Davies points out that: “The reports tell you not just what you’re buying but who’s buying, how often they’re buying and for what purposes. These insights can highlight trends and how assets are performing.”
"All of the data, up to 13 months’ worth of purchases, is available to view at any time, ultimately improving levels of control."Alex Davies, Service Delivery Manager, RS
A PurchasingManagerTM case study
RS recently supplied PurchasingManagerTM to a large utilities company in southern England. Davies outlines the company’s problem: “They had a high volume of remote end users who were procuring low value goods through various trade counter networks across the region. This lack of control led to erratic, random purchases.”
The potentially negative repercussions were enormous, continues Davies: “You’ve got quality and traceability issues because you don’t know where the products are coming from. Moreover, you’ve got different widgets being fitted to the same machinery and ultimately no economy of scale to leverage in the market.”
RS’s solution was threefold. “We built an inventory hub using our ScanStock tool for some of their fast-moving, low-value items,” says Davies. “And we rolled out PurchasingManagerTM across all their end-users, restricting where their purchasing cards can be used.
“We’re also providing them with an extension to PurchasingManagerTM, called ConnectPoint. It’s a new proposition that we’re bringing to market. It’s a tablet on an industrial terminal that lets end-users access PurchasingManagerTM – without a computer. They can swipe in with a QR code badge and access a whole range of functions.”
A range of procurement tools
This kind of connected thinking is typical. RS’s procurement tools, including the ScanStock vendor-managed inventory system as well as PurchasingManagerTM and the forthcoming ConnectPoint, work independently or together to ensure a quicker, more efficient and ultimately less costly procurement process. As Davies observes: “We’re dealing with what we call the whole spectrum of the distribution curve.”