The performance of a CEOof multinational corporations are most of the time judged on the profits. A CEO is responsible for a healthy company with as much profit possible. There are multiple ways to achieve it. You can increase the sales and revenue, but you can also focus on the internal costs a try to reduce the costs as much as possible. In this article we explain how multinational corporations cut on internal costs to maximize their profits.
The procurement is responsible for the corporations’expenses. It’s important to control the expenses. The lower the corporations’ expenses are, the more profit the corporation will get.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 corporation like Nintendo produces a lot of game consoles. For those game consoles micro-chips are indispensable. For these micro-chipsthe corporation depends on their suppliers. Without these micro-chips, they can’t produce a game console. This supplier probably delivers these micro-chips for a long time on a frequent base. They already built a lifelong relationship. They already have negotiated the best prices and conditions for these products.
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 consoles 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 the reason why a lot of multinational corporations choose to outsource the indirect procurement.
Outsource the indirect procurement
Outsourcing the indirect procurement is for the corporation beneficial. Instead of a lot of different 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. It unburdens multiple departments.
The procurement process has multiple phases. You can outsource the invoice management, so you don’t receive those single invoices anymore, but will receive one monthly total invoice. In addition to that 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 formultinational corporations.