On the very surface, costing may look like a straightforward equation, but it is challenging to figure out where most of the company’s money is going. Managers are always eager to know the figure spent on critical suppliers to make a difference in supply chain negotiations. In the process, they seem to ignore the indirect costs, which can sometimes account for the majority of an organization’s expenses. Since individual business units handle indirect spend, procurement professionals have little visibility on the spend patterns of such units. Indirect spends are estimated to account for about 15% of the organization’s total cost with the possibility of a higher procurement waste.
Here are some of the ways to bring different areas of indirect spend under procurement function:
Digitization of the Procurement Process
A modern solution to take control of indirect spend would be to use digital technologies to monitor the indirect spend. However, merely collecting the information is not sufficient. The managers should be constantly analyzing to explore cost-saving opportunities and check for areas of improvement to optimize the spend. A significant amount of money can be saved by using analytics tools that analyze in-depth spending patterns and service delivery.
Choosing Preferred Suppliers
Today, businesses rely on a vast network of geographically dispersed supplier to fulfill their demands, making the vendor selection process a complicated affair. On top of that, it is essential to maintain a healthy relationship with all key suppliers. One key strategy used to curb the indirect spends would be to minimize maverick spends by renegotiating contracts with key suppliers in each category of top spend areas. Additionally, it is possible to gain leverage on pricing by pooling in smaller spends into a fund with fewer suppliers.
Outsourcing the Procurement Process
Considering the pace at which businesses are growing today, it can be notoriously difficult to contain costs regarding procurement and vendor management. In addition to that, companies also must worry about compliance and governance. A majority of the companies are looking to outsource the procurement process to gain control of their indirect spends. Outsourcing the non-core process of indirect spend not only ensures better performance and value improvement but also enables the organization to free up resource bandwidth and use it towards strategic activities.
For more information on how your organization can manage and control indirect spend: