The Pareto principle, applied to purchasing, shows that a small proportion of the company’s resources – around 20% – alone generates the majority of its turnover – between 70 and 80%. From this principle follows the ABC classification: purchases are categorized in descending order of purchase volume, in classes A, B and C. Class C purchases,” which correspond to “generic purchases of small amounts,” are considered non-recurring and non-strategic. These include supplies and small equipment, include various categories of products and services, and are intended for scattered use across the company’s various departments. While class C represents the lowest volume of purchases, it does, however, entail a high indirect cost for the enterprise.
Class A and B purchases represent significant visible expenses, which the company is committed to monitoring. The control of class C purchases, on the other hand, is often inappropriately neglected. Because Class C purchases – also referred to as “wild shopping” – involve higher hidden costs, it is essential to optimise them as well, resulting in substantial savings and productivity gains. How do we do this? Which levers to use? Answers!
SUMMARY
1 – Streamline a supplier base
How can 5% of the total purchase volume represent in practice 60% of the order volume, 75% of the number of suppliers and 85% of the number of items?
- Because these Class C purchases involve a wide range of expenditures. Not only in terms of families of products and services, but also in terms of end-users within the company. In this context, the number of suppliers can grow rapidly and the purchasing decision is diluted across scattered departments. As a result, data collection and analysis is made complex, and purchasing optimization is neglected.
- Because these uncontrolled purchases are often unrelated to the core business and decided at the last minute in a hurry. Outside of the process, they then escape the global policy decided and implemented by the purchasing department.
Very diverse and carried out in a hurry, Class C purchases are set aside. The apparent complexity of managing class C purchases is a hindrance for the company, which fears the scale of the project. Another difficulty is the small amount of money involved – in terms of direct expenditure – which in fact conceals the real issues involved in optimising class C products… To better understand them, the company must consider the full cost rather than the direct expenditure. By doing so, it can get a realistic view of the financial weight of indirect costs related to class C purchases, and can optimize them effectively.
1st golden rule to optimize your class C purchases: the rationalization of your supplier base. This involves drawing up a precise and accurate inventory, by collecting information from the company’s various levels of services.
- Start by listing the different suppliers you use. In view of the large number of contacts, the need to reduce the number of contacts is obvious.
- Then identify the companies that can be replaced. A non-recurring supplier that provides a reduced product offer under moderately attractive commercial conditions may be considered interchangeable.
- Reduce your list of suppliers and concentrate your orders. This allows you not only to minimize management constraints, but also to negotiate discounts more easily.
2 – Get closer to a supplier capable of addressing the “long tail”
The best way to optimize your Class C purchases simply and efficiently is to select a single supplier who can offer the widest possible product range. Class C purchases represent the long tail: the number of items is important, the references are diversified, the purchases are not recurrent.
The selection criteria of your long tail supplier:
- The supplier covers not only the largest number of product references, but also the widest geographical area. The company whose sites are spread over an area that corresponds to your own territorial coverage thus offers itself the possibility of centralising its orders with a single supplier.
- The supplier focuses on the quality of reporting. Because wild purchasing data is difficult to collect and process, the supplier’s contribution is valuable. By providing you with detailed and organised information, it facilitates the work of the purchasing department in optimising the purchasing department.
Of course, it will be a matter of negotiating advantageous commercial conditions with the supplier. Your key argument: you give the supplier exclusivity in the long term, for large order volumes…
3 – Optimizing deliveries
Last golden rule to optimize your class C purchases: optimize your deliveries. Acting on this item indeed allows you to make substantial savings.
- Analyze the number of on-site deliveries per month or week. You immediately realize whether it is possible to save manpower and time by acting on the rounds. Note: Qualitative reporting from the supplier helps you to analyze this central data.
- Work on the error rate. Delivery errors, bad timing, wrong consignee, products damaged during transport… identify the anomalies to find adequate solutions to reduce the error rate.
- Reduce the ecological footprint. Take advantage of your delivery strategy to improve your ecological footprint. You are “greening” your company’s image and contributing to the collective environmental effort, a win-win initiative.
Note: to reduce your ecological footprint, you can, for example, reduce the frequency of deliveries. By planning your needs in advance, you concentrate your Class C purchase orders and reduce the carbon footprint generated by transport. Internal logistics are also improved: you have fewer deliveries to manage. Capitalize on these efforts to obtain an environmental label, and communicate about it.
Conclusion:
Don’t make the mistake of neglecting the proper management of your Class C purchases. By reducing the number of suppliers, negotiating better purchasing terms and conditions and carefully monitoring the processes, you offer yourself the opportunity to reduce your hidden costs, while saving considerable time in managing your supplies and avoiding unnecessary constraints. Beyond these operational aspects, the quality of the service offered by the supplier must find a prominent place among your selection criteria. Indeed, only a quality supplier will become the trusted partner and valuable support that the purchasing department is looking for to relieve it and enable it to focus on its core business and tasks with higher added value.
