Most companies lack visibility into their indirect spend categories and fail to apply cash to the business when required. Such categories account up to 50% of the total spend and include purchases such as professional services, travel, IT, marketing services, HR, facilities, utilities, janitorial services, maintenance, repairs, and office supplies. Organizations usually document their direct spend but underestimate indirect expenditures, thereby leading to poor indirect spend management. They overlook the fact that small expenditures can impact the company’s bottom line. This article will help you understand the methods for efficient indirect spend management.
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Ways to Improve Indirect Spend Management
Establish a set of metrics
Put an evaluation method for tracking your indirect suppliers in a way similar to direct suppliers. Create a simple set of KPIs that can measure contract compliance, quality, and cost competitiveness. Keep this data in a central location, so that all departments and stakeholders can access the information and make spend strategies based on that. This will help you to get valuable information for timely decision making.
Consolidate indirect spend into specific categories
Often companies do not involve employees while developing a category policy. Employees order supplies without any oversight or regard for potential savings. Make employees aware of indirect spend management and seek improvement opportunities across all departments. Involve them in devising purchasing strategies and category spend policies. Consolidate purchases such as office supplies company-wide orders and implement company-wide contracts that can provide the scope for benefits such as volume discounts, attentive suppliers, and favorable contract terms.
Improve spend visibility
Companies can’t really fix problems if they are unaware of them. Poor visibility into spend results in missed opportunities for savings and increases risks of fraud. If you’re still tracking expenses with spreadsheets and reports, it’s time to leverage technologies to gain real-time visibility into all transactions. Monitor company-wide activity and track everything from invoices to the performance of suppliers. This data obtained will enable all suppliers and departments to make informed business decisions.
Bringing spend data into a centralized platform doesn’t mean the work is done and you become complacent. Once you have identified issues that are leading to increased business operation costs, monitor supplier’s performance, pricing and services to identify areas of continuous improvement. It may happen that suppliers start feeling overconfident due to continued business and focus on getting new business. Check their performance at regular intervals to ensure optimal services. Obtain detailed insights into the current market conditions and suppliers’ position in the market, manage inventory data, avoid under and overstocking, and consolidate purchasing to improve indirect spend management.
Inability to monitor suppliers’ performance can impact the efficiency of organizations and increase operational costs. Stay a step ahead by requesting a free demo of our procurement platform and gain exclusive market insights to improve indirect spend management in procurement.
How SpendEdge Can Help you Improve Indirect Spend Management?
SpendEdge’s indirect spend management experts can provide you with the insights to perform spend analysis and identify pinpoint expenses impacting the cash flow, thereby enabling executives to promote change and improve the process. They can help you select the right vendors and gain valuable leverage on pricing by developing effective negotiation strategies.