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Getting a Grip on Indirect Spend – Worthy of Direct Attention

When it comes to direct spend versus indirect spend, organisations are facing challenges. They know indirect is important, but its impact on the bottom line is often overlooked.

Enforced by the advent of the disruption economy, the challenging market conditions has placed companies under immense pressure to look at ways to reduce costs and uplift the profits.

One of the area in the organisations where sufficient cost reduction opportunities exist is within indirect procurement. Companies can save on average 9% of indirect spend annually.

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Barriers to generating value from indirect spend

Indeed, managing the indirect spend can be challenging. It involves many categories and subcategories—and suppliers—of products and services for which there can be a multitude of relatively low-price transactions. Sometimes other departments buy the goods and services from favourite suppliers and have done so for years. When procurement tries to step in, they may feel threatened.

Organisations need to be able to break down the following barriers to generating value from indirect procurement spend:

• Lack of spend visibility
• Poor category management
• Scattered supplier base
• Dislike to technology

The steps outlined below detail a basic approach that can be taken to comprehend cost savings through indirect procurement:

• By leveraging spend analytics, companies can identify the amount, category and suppliers for indirect spend which can help to get the buy-in of internal stakeholders later on.

• Introducing a viable bidding process and identifying preferred suppliers is another effective way to generate value.

• Review the data, identify improvement areas and discover saving opportunities by evaluating the success of the initiatives undertaken.

• Align all budget owners across the organisation with the goals and their responsibilities towards the indirect procurement cost saving initiative.

The bottom line is effectively managing indirect spend adds up, and can be a source of tremendous value for organisations of all sizes. By recognizing the category, spend and improving supplier relationships, organisations can showcase the opportunities for sourcing savings.

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