First Step in Controlling Indirect Spend is Understanding its Evolution

The way to elevate indirect procurement to the strategic organizational role it deserves is to discern problem areas and identify solutions.

While a growing number of procurement executives are learning about new options available to effectively manage their companies’ indirect spend, they may be finding the actual route to success can be challenging to navigate.

By gaining an understanding of the reasons why these obstacles exist, procurement officers can find the right solution for their companies that will generate significant savings and process efficiencies.

In an earlier blog, I discussed some of the reasons why companies may have not yet embraced technology-enabled indirect procurement services. The first could be referred to as “clinging to the status quo.”

In many mid-size companies, indirect spend for non-strategic products and services has been loosely managed and is often confined within a company’s functional silos, such as finance and IT. There, it’s likely that a system to handle these purchases evolved over time and is now firmly in place. If staff is asked why the indirect spend is handled as it is, a likely answer will be “We’ve always done it this way.” This kind of thinking can be deadly to any company focused on keeping its business moving forward.

Other obstacles I touched on previously include the impossibility of building and nurturing category coverage and supplier relationships with potentially thousands of suppliers in the indirect spend basket; the lack of access to detailed spending analysis; and virtually no oversight of quality control and measurement.

Here are a few additional “speed bumps” that could be costing a company valuable opportunities for savings:

Direct procurement is typically managed with the input of employees within product or manufacturing groups with a specific interest in how it’s implemented. Indirect procurement, on the other hand, for products and services like HVAC maintenance and office supplies – things that can impact the entire company – often affect more internal stakeholders across the organization. Procurement executives may simply not have the mandate or the power to control the actions of so many people involved in the indirect spend process.

Another factor that could hinder current indirect spend processes, especially in mid-size companies, is the inability to negotiate advantageous prices and terms. The smaller purchases that are more typical in indirect spend often may not qualify for leveraged pricing because of the size of the orders.

Finally, there is a special area of indirect procurement that’s been referred to as “maverick spend.” This can include one-time purchases that may be transacted with a credit card and therefore aren’t visible to top procurement executives.

In the search for an innovative solution that will bring new focus and control to the indirect spend process, procurement professionals should look for a service that combines source-to-pay automation technologies with price-competitive, pre-sourced programs. The most successful solutions are those which are simple to implement and don’t require a complete changeover of a company’s processes.

Don’t let the mindset “We’ve always done it this way” shut down the possibility of innovation and true organizational transformation. Now may be the best time to push convention and begin the search that will lead to the long-term success of your business.

Bill McCouch

About Bill McCouch

Bill McCouch is Senior Vice President of Procurement Services, for AmeriQuest Transportation Services, with more than 30 years of transportation industry experience. In his current role, he leads the procurement sales force and is responsible for the growth in the private fleet and carrier sectors.

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