The Indirect Opportunity

In today’s ultra-competitive market, you need any edge you can get. One area that is ripe for savings and that can provide a much needed competitive advantage is indirect materials management. Companies that have focused on their indirect materials spend have seen significant returns. Best-in-class companies enjoy three times the savings when compared to their peers. Such an advantage can drive up to a full point of margin to the bottom line.

In contrast to direct material, raw material or component items that get assembled or transformed into a finished product, indirect material includes all of the “other” material used by businesses to keep their operations running smoothly. From telecom equipment and tooling to maintenance and office supplies, there is a significant array of indirect materials that are used in the course of a company’s day-to-day operations. While most companies do not closely monitor their indirect material usage, it can add up to a significant figure…$150 billion in the US alone.

While there have been many advances in the tools and techniques to more effectively manage direct materials, indirect material has been largely ignored, and as a result, is rife with significant waste and operational inefficiencies. Here are some telling statistics:

  • 50% of indirect items remain unused/inactive over any given 12 month period
  • The average indirect material order size is $200 while the average cost to execute an order is $75
  • Unplanned purchases make up 20-40% of a company’s indirect material spend

These statistics suggest that there is a significant savings potential that can be realized in the indirect materials arena through the application of forward-thinking indirect material management tools and techniques.

Unfortunately, existing direct material management tools do not effectively translate to the indirect materials space.  What is needed is a comprehensive solution specifically tailored to the unique challenges of the indirect materials environment.  The MarginPoint Platform is just such a solution and enables industrial companies to streamline their indirect materials processes to drive down costs and improve profitability while maintaining or improving their operational service levels.

MarginPoint offers a comprehensive indirect material management solution that borrows many of the tried and true techniques that have delivered hard savings in direct materials to the indirect materials space.  Some of the fundamental concepts include:

  • Increasing visibility to material inventory

  • Identifying and controlling usage

  • Driving replenishment from usage or demand signal

  • Consolidating supply relationships and SKUs

  • Automating order flow to eliminate manual steps

  • 24/7 access by authorized users at point-of-use 

By proactively managing indirect materials with a set of robust tools and processes, companies can drive down inventory, reduce management costs and improve productivity.  The net result is a significant cost reduction that can translate into as much as a full point of margin added to your bottom line.