Even companies with the most cost-effective, efficient operations can struggle with indirect spend. Often not centralized and left in the hands of a variety of players in disparate locations, it’s all over the place.
So, this post is dedicated to sharing some key strategies for wrangling your indirect spend to get it working for your operation and not against it.
The challenge of managing indirect spend
The wide array of categories in play makes indirect spend a challenge to manage effectively. Managing the diverse supply chain involved can be daunting.
But spend per category tends to be lower with indirect spend. When companies aren’t buying in volume, they don’t have the leverage they need to get the best pricing from suppliers. But while that’s true, companies tend to order more frequently, across multiple categories. When this function is based on manual processes, it represents a profound drain on resources.
And when indirect spend is spread out across multiple locations or departments, things can get out of control quickly, due to cowboy spending. An immediate need may compel employees to purchase for reimbursement, taking the purchases they’re making “off road”.
It’s the nature of the indirect spend that marginalizes it. While principals are clear on the value of direct spend, the enormity of indirect spend is rarely scrutinized to arrive at strategies to make it a Center of Excellence. Without control of the supply chain or the quality of goods being purchased, indirect spend is not as transparent in most operations as it should be.
Without the executive tier’s buy-in, it’s unlikely you’ll be able to reform your indirect spend. So, getting that first is the foundation of wrangling it.
Data is your friend, as you point out the largest areas of indirect spend to executives. Analyzing that data and finding ways to rein in costs by knowing about the areas you’re presenting to them as targets for potential reform, demonstrates the need for change. When you’re able to clearly show that you can do better, they’ll be on board
The largest areas of your indirect spend are where preferred suppliers should be established. This change will rein in cowboy spending. By consolidating suppliers in the bigger ticket categories, you get the leverage you need to cut costs, improve the supply chain and ensure quality.
Reduce manual input and create a sharper focus by using collaboration tools that manage indirect spend for you. Data tells you what you need to know and automation cuts out manual processes.
While the numbers and types of vendors are many in indirect spend, there are four key KPIs which can make a difference. These are compliance, competitiveness, continuous improvement and customer satisfaction. Applying these as a test of your indirect spend’s effectiveness creates a framework for reform.
Wrangle it, with CenterPoint Group
Indirect spend is a challenge for many companies, but with CenterPoint Group GPO it’s met with focused expertise from a trusted procurement advisor, leveraging $850 million in collective indirect spend.
Contact us. Let’s wrangle.