Differentiating between indirect, class C and unscheduled purchases

indirect purchases
February 18th, 2020
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Aside from the classic and binary categorisation of purchases in companies, depending on whether purchases are strategic or not, there are several similarities and differences between them. Indirect, class C and unscheduled purchases are very often confused. However, despite being intrinsically linked, they each represent a unique type of purchase. Here are a few key ways to differentiate between them.

Indirect purchases

Firstly, it's important to note that the term "indirect procurement" encompasses both non-strategic and non-production purchases.

By definition, indirect procurement refers to all goods and services that are necessary for a business to operate, but that fall outside of the company's core activity. Unlike direct procurement (i.e. strategic or production purchases), the management of indirect procurement is less structured. Indeed, 79% of companies admit to not having a comprehensive overview of their indirect purchasing expenditure.[1]

Indirect purchases cover a range of purchasing areas, including IT and telecom systems, vehicle fleets, general costs, travel and transport expenses, marketing and communication, intellectual services etc.

Class C purchases

The method for classifying class A, B and C purchases is a variation on the Pareto principle.

According to this classification, class C purchases are non-recurring and non-strategic. In other words, they are essentially indirect purchases, ordered occasionally and at low prices. Although they represent a small share of direct costs, they account for a large majority of indirect expenses.

Examples of class C purchases include office furniture and supplies, tools, hygiene products, small industrial equipment etc.

Unscheduled purchases

Unscheduled purchases, also known as spot purchases or ad hoc purchases, comprise any product or service required by a company on an irregular or one-off basis in order to deal with everyday situations. They account for approximately 20% of a company's indirect purchasing volume, yet 80% of their administrative costs.[2]

They are named "unscheduled purchases" as their management is entirely unstructured. Very often, these purchases are made as a matter of urgency and are beyond the control of procurement departments. In concrete terms, unscheduled purchases can include furniture required for an event, grit for when it snows etc.

 

In conclusion, despite some overlaps, the areas covered by each of these three types of purchases are not quite the same. However, all three raise challenges in terms of competition for companies because they involve a whole host of hidden costs.

 

[1] Sherpa HEC

[2] Manutan Group

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