Like every company, multinationals always try to achieve the highest profits possible. Maximize the revenue and minimize the costs will give the highest profit possible. There are multiple ways to achieve it. Get more sales is one way, cutting on internal cost is another way to maximize the profits. In this article we explain how multinationals cut on internal costs.
Procurement is an important department within the company. The procurement is responsible for the expenses. It’s important to have the expenses in control for the internal cost. Every expense has to be calculated in the selling price. The less the expenses are, the more profit the company gets.
In general, there are two types of procurement: Direct procurement and indirect procurement. Direct procurement is de procurement of raw materials, goods and/or services which are necessary for the core business of the company. A multinational like Nintendo produces a lot of game consoles. For those game consoles the depend on the micro-chips from their suppliers. Without those chips, they can’t produce a game console. This supplier probably delivers these micro-chips for a long time on a frequent base. So they already have the best prices and conditions for these products.
Indirect procurement is most of the time a hidden treasure. Indirect procurement is the procurement of materials, goods and/or services which don’t directly have influence on the core activities of the company. In case of Nintendo, this could be office supplies. Without the office supplies the game console can still be produced, but office supplies are necessary for the personnel to be able to work. Things like office supplies is not a thing companies order on frequent base. Most of the time they order things once or twice at the same supplier and that’s it. Those suppliers cost a lot of time and money. Because you have to make new creditors, check the invoices and control the whole process. This is why a lot of multinationals choose to outsource the indirect procurement.
Outsource the indirect procurement
Outsourcing the indirect procurement brings a lot of benefits. Instead of multiple invoices with different payment terms from different suppliers, you will get one total monthly invoice and have one point of contact. Because of this, the company can reduce the supplier base up to 80%. For the financial department is one single invoice instead multiple invoices time-saving and less sensitive to errors.
Source to Pay
There are multiple phases in the procurement process. You can only outsource the invoice management, so you don’t have to worry about those single invoices. But you can choose to outsource the Source to Pay process to. In this case you let another company find the best suppliers with the best commercial conditions for your supplies. At the end you get your supplies for the best prices and only have to pay one total invoice. This can save up to 21% on internal costs. Imagine what an amount that could be for a multinational.