Category: Supply Chain Management
Subject: Why Automating High Volume / Low-Risk / Low-Cost purchases is a good idea
Topic: It has been a well-accepted premise since the 1980’s when Kraljic published his purchasing model that the Non-critical items (eg. low risk) and those also at a low-cost or minor business impact generate 80% of the purchasing transactions but only make up 20% of your total purchasing spend.
The Kraljic model helps us understand how product items are classified in terms of Supply Risk, Cost and Business Impact and why we should find better and more efficient and effective ways of managing the non-essential items, especially in large organisations where these high-volume transactions soon add up. For example, some studies suggest that an average purchase order costs $50 to create; we can easily use automation to reduce this cost to less than 50c.
Other benefits include the reduced usage of Purchasing Cards, greater visibility and timeliness of commitments, greatly reduced administration effort and cost, and allows procurement professionals to concentrate their attention on high-risk / high-cost / critical acquisitions. 👇