The Hidden Costs of Dark Purchasing

Supplier e-Invoicing

If you don’t have procurement under control, then you may be missing a profit center that’s hiding in plain sight, especially in the area of indirect spend.

I recently wrote a blog for Monitordaily and gave an interview for an article in PYMNTS.com, detailing how a lack of clear direction and strategy on procurement can lead to what I call “dark purchasing,” or, in other words, an inability to track where a company’s expenditures are going. Much of that problem may stem from the confusion those involved in the procurement process are experiencing. It’s a problem that’s much deeper than most companies realize and could be quite costly. AmeriQuest Business Services recently surveyed 2,000 respondents, key people directly involved in the procurement process and the results were quite startling.

  • 20.4 percent of the companies had no procurement process in place;
  • 13.3 percent had no idea if their company did, or did not have, a procurement process in place;
  • Less than a quarter of the survey respondents indicated that procurement was viewed as a strategic business partner;
  • Another 25 percent noted that procurement is simply seen as a function of accounts receivables/account payables;
  • Approximately 25% said they order supplies on their own and then file expense reports;
  • Fifteen percent of the survey respondents didn’t know which department managed their company’s procurement, even though they were directly involved in the process.

With this amount of confusion, it’s not surprising that businesses may be missing out on rebates and potentially better pricing and terms. Where this becomes particularly costly is in the area of indirect spend. I’ve posted a number of blogs on the cost to a company when it doesn’t gain control over this very important and constantly overlooked aspect of procurement. When it comes to choosing to oversee direct vs. indirect spend, it would seem to make sense to focus on the former.

After all, why wouldn’t you focus on a $10,000 piece of equipment and pay less attention to a $10 item? But to have that attitude is to sell your company short. That’s because your company probably makes thousands of those low-dollar purchases from hundreds of different suppliers. And since these smaller, indirect purchases often originate with someone outside of the procurement function it becomes even harder to control. When it comes to indirect spend, procurement staff that may already be confused as to process (as is evident in our survey) all too often are really operating in the dark.

When you consider that indirect spend makes up about 20% of total company spend and, according to consultant group EY, optimizing that same indirect spend can lead to savings up to 25%, it becomes clear that rather than leave indirect spend as dark purchasing, you should instead, bring it into the light. With all of the thousands of small purchases and multiple vendors, it may seem like a daunting effort to gain control. Fortunately, there are now multiple automated solutions that address each step in the transaction process, including P2P solutions that specifically target indirect spend. This will enable you to eliminate the paper and manual efforts that make gaining control over indirect spend so difficult. It will also allow you to centralize control over all company spend, validate pricing and terms, and attain full visibility into all purchase transactions.

As I said in my Monitordaily blog, it’s “the ‘little things’ that matter (including every one of those $10 purchases), and that’s where ‘dark purchasing’ can incrementally chip away at profits.”

See how you can gain control over your entire company spend.

Reggie Peterson

About Reggie Peterson

Reggie Peterson is Director of Indirect Products for AmeriQuest Business services. In this role, Reggie is responsible for leading the company’s growth of its indirect procurement offering that helps organizations better manage their procurement lifecycle to reduce cost and complexity. A 20 year veteran in supply chain management, Reggie’s previous experience includes serving 16 years as a Senior Procurement Manager for Coca-Cola, and as a Procurement Manager – Indirect Materials for Siemens.

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