Is Your Company’s Indirect Spend Costing Too Much?

Mid-sized companies now have an option that will enable them to save time and money on the procurement of non-strategic operational expenditures.

While procurement activities have been undergoing a major evolution within some of the world’s largest corporations, for most mid-sized companies the sourcing of things like office and MRO supplies, HVAC services, travel, payment services, and security is one of the least-managed aspects of procurement.

That fact raises the important question: Is your company’s indirect spend costing too much? Considering the simple fact that the spend is poorly managed, the answer is almost certainly yes.

Here is one reason why: indirect procurement is usually overlooked because it doesn’t involve spend related to a company’s core competency. Both C-level executives and middle managers understand that overarching strategies and disciplines should be in place for the sourcing and supply management of direct materials. But for indirect goods and services? Not so much.

This is because indirect spend has traditionally been undertaken manually and is often siloed in functional areas within a company. That leads to little management oversight corporate-wide of the important activity.

In addition, studies have shown that procurement specialists devote a disproportionate amount of time in sourcing these operational expenditures even though they comprise only a small percentage of an organization’s procurement purchases.

Ideally, these specialists should be focusing on more strategic endeavors such as forecasting and analytics.

The bottom line is the loss of cost-saving opportunities that may exist in terms of labor, product and services pricing and access to purchasing analytics showing all-important spend patterns.

Some global management consulting firms have been offering complex indirect spend management programs to multinational corporations lately. Mid-size companies, however, are often left to fend for themselves and are actually more susceptible to price volatility than their larger competitors.

The best advice is to consult with a company which has a proven track record of using technology to aggregate the purchasing power of hundreds or thousands of companies to offer pricing normally available only to major corporations. Look for a services provider which has long-standing relationships with some of the country’s largest suppliers. The best source would have professionals on staff with domain experience to secure consistent pricing with every purchase from an approved supplier.

To further reduce indirect spend costs, the provider should offer an automated accounts payable system that saves labor costs by requiring a single payment for all purchases. This can dramatically accelerate the source-to-pay cycle.

A final bit of advice: Since one of the biggest obstacles to the implementation of automated procurement systems can be staff’s resistance to process changes, look for a program that requires minor adjustments to existing procedures already in place, with the caveat that they purchase from approved suppliers with the indirect spend network.

The indirect spend program should focus on every aspect of indirect procurement, including supplier management, catalog management, strategic sourcing, price negotiation, e-invoicing and payment and spend management.

The savings and value of an indirect spend program are only now being realized by mid-sized companies representing nearly every industry in the country. It’s time to get ahead of the curve and begin taking control of your indirect spend now.

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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