Managing your indirect spend can be challenging. Accounting for between 15 and 20% of total spending for most companies, it’s a complex feat, indeed, taking in numerous categories of goods and services and a battalion of suppliers. But you should know there are companies out there who are spending as much as 50% of total spending on indirect spend.
So, it’s important and it can get away from you in a hurry.
There are so many factors affecting the bottom line in this area of procurement, from rogue spending to a preponderance of inoperable or unused inventory. But you can save millions in indirect spend if you play your cards (and your data) right.
Rogue spend effectively is a huge undertaking and one which your organization may not currently have the human resources required by such an effort. Even if you have the resources, do they offer have the kind of experience you need for managing indirect spend?
Let’s get into some of the areas you can achieve superlative savings and efficiencies by getting your indirect spend under control and pulling its weight. Reining in your indirect spend is all about the strategy you apply. To begin with, just shifting your focus to rogue spend costs can save you 25% right away. And that’s only a first step.
An important key to optimizing your procurement process is automation in key areas like supplier payments, reorders, and other administrative tasks. By streamlining purchasing and payments, you can free up resources for more important work. Also, when your payments are automated, you’re going to save on late fees and interest.
Automation also provides you with consistency of spending, which will narrow your spend and pay dividends on your budget.
Knowledge is power and the more you know about your indirect spend, the more power you have to streamline it. If you do not know what your company is buying and cannot determine that quickly, then you will remain in a state of reaction. With good regular reporting to can begin to make proactive and bottom-line affecting changes.
Transparency means that the people up the chain know how funds are being spent and who’s spending them. Who has access to the corporate credit card? What department or site am I not capturing spend on? More importantly, are we buying the products that we negotiated and at the rates we negotiated them? When you don’t have that information, there’s no accountability and no opportunity for timely remediation.
Making transparency a priority helps to eliminate rogue and fragmented spending, giving everyone a bird’s eye view of where the money’s going.
With a little elbow grease and intention, here is where incredible savings can be had. To begin, you will need well curated data which points you at decision makers or departments who are spending the most on indirect spend. Using the Pareto Principal, find the buyers who are the primary purchasers for your company. You need to educate them on the contracts they are utilizing and keep them up to date on best purchasing practices.
Working with your big spenders to reduce their footprint wherever possible can change the whole game. It is easy to generate savings on a spreadsheet, however to realize that savings you need to affect behavior. Build a strategy that simplifies your big spenders purchasing -- guides, lists, caps, budgets and approval routing are industry standards.
While you may not be able to cut costs on all indirect purchasing, finding the big spenders will direct you to where the most money is being spent, which will lead to big savings.
CenterPoint is a Group Purchasing Organization (GPO) and trusted procurement advisor, leveraging the power of an indirect collective spend of over $850 million. Economies of scales aren’t the only thing that saves our members money, though.
At CenterPoint, we make managing indirect spend a seamless process that doesn’t strain your human resources (or even hurt a bit).
The information contained in this article is intended for general information purposes only and is based on information available as of the initial date of publication. No representation is made that the information or references are complete or remain current. This article is not a substitute for review of current applicable government regulations, industry standards, or other standards specific to your business and/or activities and should not be construed as legal advice or opinion. Readers with specific questions should refer to the applicable standards or consult with an attorney.