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Indirect Procurement – Does it Offer Cost Saving Opportunities?

Mar 28, 2019

Indirect procurement, usually referred to as indirect spend, represents the purchasing of goods and services that are imperative for day-to-day operations of companies. Although it is invisible compared to direct spend, it usually accounts for 20% of the company’s total expenses. This is a huge number, especially for companies looking to reduce costs on a sustained basis to improve bottom-line profits in the current global economic scenario.

Despite the presence of numerous cost-saving opportunities, many companies still fail to achieve their desired level of profitability.  They find it quite challenging to efficiently manage indirect procurement costs. Therefore, in this blog, we are highlighting the key challenges companies face irrespective of their industry and the ways SpendEdge can help tackle them.

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Key indirect procurement challenges

Challenge 1: Increasing number of stakeholders

Often, the diversity of materials and services that fall within the indirect procurement category makes it challenging for businesses to identify cost saving opportunities. The multiple channels through which materials and services are procured and the number of stakeholders involved adds to the complexity of the situation. This complexity is frequently seen as a barrier for companies aiming to control indirect spend cost.

SpendEdge strategically analyzes the indirect procurement process of clients and helps identify practices that can aid enterprises to reduce risks. It also quickens on-boarding processes and increases cost savings by improving the effectiveness of their indirect sourcing practices.

Challenge 2: Lack of a centralized supply chain

Not many organizations have a procurement area dedicated to indirect spend. This results in sporadic buying patterns, lack of preferred suppliers, and a number of challenges such as the lack of meaningful data, fragmented supply chains, and embedded local personal relationships with suppliers. This makes indirect procurement a low-value and low-risk area to manage for companies.

By consolidating metrics across various sectors of the supply chain, SpendEdge identifies the structure of the supply chain and stakeholders risks such as stakeholders’ supply capacity, fluctuations in supply capacity, and its impact on prices.

Challenge 3Poor visibility of indirect procurement

Companies usually consider indirect procurement to be less important than direct procurement. They maintain powerful relationships with suppliers for direct spend but fail to improve their indirect spend portfolio. Moreover, the cost savings for indirect procurement are not linked to a specific bill of materials as with direct procurement. This impacts cost savings in indirect procurement, substantially.

By employing SpendEdge’s supplier cost analysis (or) price breakdown analysis technique, companies can gain a detailed understanding of the various components and procure the right products and services at the right price levels.

Supplier relationships can impact indirect purchasing for companies. Get in touch with our experts and know how you can ensure the smooth functioning of the indirect procurement process.

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