From paper clips to airplane travel, indirect spend is made up of all the materials and services that companies need in order to function. Marketing, utilities, maintenance are all lumped under indirect spend. This variety of expenditures can be a real chaotic challenge for a business.
While direct spend counts for the big items that are purchased daily for a company to manufacture products or services indirect spend can be harder to manage, but it needs to be highly controlled. Up to 50 % of a company’s purchases can be indirect spends.
The challenge of indirect spend:
Broad Variety of Suppliers: It’s hard to manage all the different categories of indirect expenditures. As well having such a vast knowledge of each type of purchase is difficult. Managing this becomes at times, chaotic with limited resources and lack of time to sort through the different purchases
Standardization: A lot of companies need to have a standardized process for managing indirect spend, and don’t have it in place, or know how to go about it.
Smaller Average Spend: Purchases for indirect spending can be smaller and that gives less of an advantage to the purchaser who could negotiate better terms in bigger quantities.
Maverick Spending: One-off purchases of bigger items and emergency expenditures may be missed in the procurement department of an organization.
Experience: Indirect spending needs a team of people who can combat the issues of variety, experience and knowledge of the many different purchases needed for the company to operate.
Lack of Time and Software: Many companies don’t have the resources or time to highly manage their indirect spend. IT needs updating, software is no longer compatible and the cost of having such a large team of procurement managers is costly.
How to control Indirect Spend
Data: Collect data on your largest expenditures. This will give you an idea of where to hire an experienced individual to manage the indirect spending.
Preferred Suppliers: After determining your largest expenditures in indirect spend, minimize the maverick spending by choosing preferred suppliers amongst them. This will help you merge purchases with fewer suppliers and increase your leverage.
Automate : The volume and variety of indirect spending makes it an ideal area to manage with the right software solution. Consider the time, effort and money you will save from a procurement solution software.
Indirect spend is clearly an issue companies can’t ignore anymore. Finding a solution will depend on your resources and determination to keep your bottom line low and unaffected by the challenges indirect spending brings to the table.