Time to Take a Closer Look at Indirect Savings

Purchasing teams have endured a constant state of crisis since Covid 19 shut down most manufacturing in early 2020. Material shortages and seemingly endless price increases have interrupted nearly any strategic focus as teams have been overwhelmed with “chasing parts” and fighting off supplier price increases to the best of their abilities. Now that the dust is settling (with the exception of chip shortages, projected to be an issue through 2023), it’s a great time for purchasing teams to return to a strategic sourcing focus of aligning the supply base to optimize cost, quality, delivery, and innovation.

Direct materials make up the bulk of spend for most manufacturers and logically, they see this as the first place to start. But experience tells us that indirect spend can deliver significant cost savings when high inflation periods reverse like we’re experiencing at this time. True commodities (many available suppliers, relatively low strategic impact to your business) can be found throughout the indirect spend, and these are the fastest and easiest to implement cost savings while improving service levels.

Indirect spend is a broad description – it can be helpful to think of five major buckets for manufacturers:

  • MRO – Maintenance/repair items and factory supplies
  • Consumables – Packaging, lubricants, perishable tooling
  • Facility services – Cleaning, uniforms, facility improvements
  • Logistics – Freight and warehousing
  • Corporate services – Marketing, IT, consulting

We’ve had recent great success applying strategic sourcing to factory supplies, packaging, and freight to deliver excellent savings. With the right knowledge – beginning with detailed spend analysis and researching service level requirements – you can quickly implement savings and better meet the needs of stakeholders.

Click here to view our recent webinar on Reducing Corrugated Packaging Costs

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