As their procurement function matures, every organization will eventually go through the journey of bringing indirect spend under control. At Una we’ve seen lots of inspiring success stories, but we’ve also seen a lot of mistakes being made.
Indirect spend refers to the purchase of goods and services that do not become part of an organization’s final product or service. Generally, this means anything necessary for day-to-day operations such as office supplies, IT software and support services, travel expenses, warehousing, and utilities.
Here are six common mistakes to avoid in indirect procurement.
The most common mistake in indirect spend is to downplay its importance. Although the amount is spread across frequent, low-volume purchases with low average spend, it can account for 15% to 30% of an organization’s total expenses. The savings opportunity is significant: bringing indirect spend under management can generate cost savings of 20% to 40%.
Organizations that make this mistake usually leave the management of indirect spend entirely to internal stakeholders, and regard indirect spend as a tactical rather than a strategic issue.
Indirect spend is impossible to track if the data is spread across disparate sources such as emails, spreadsheets, and pieces of paper on stakeholders’ desks.
By investing in procurement technology and mandating that all indirect purchases are made through a centralized system, organizations can create a single source of truth for indirect spend data. This enables spend analytics and the identification of wastage, duplicate purchases, maverick spend, and poor value-for-money.
Due to the high number of suppliers, lack of input from the procurement team, and low visibility, unmanaged indirect spend is rife with risk. Spend Matters identified three types of risk:
Why should direct suppliers get all the attention? Even though indirect procurement has many low-volume or one-off purchases, spend analytics will inevitably reveal an opportunity for consolidation with particular suppliers.
For example, by consolidating all your office stationery supplies with one vendor, your procurement team will be in a better position to negotiate volume discounts and create an ongoing partnership that will help guarantee supply and improve service levels.
Bringing indirect spend under control requires every stakeholder to get on board. This is change-management 101: you can upgrade your technology and optimize your processes, but unless you address the “people” side the equation, the change will fail to stick.
With indirect spend, this can lead to problems including people failing to use the centralized purchasing system, high levels of maverick spend, unrealized cost savings, and increased risk.
Even with the help of the latest procurement technology, there’s no denying that indirect spend management is complex and difficult. Trying to keep everything in-house and failing to ask for expert help reduces your chances of success.
To unlock truly impressive cost savings in indirect procurement, the secret is to leverage your buying power. Businesses can gain access to better contracts and discounts than they could negotiate on their own by partnering with a group purchasing organization like Una.
Una members have access to a robust supplier portfolio offering pre-negotiated contracts across several spend taxonomies. This means we’ll be able to find savings and spend management solutions in multiple spend categories – corporate services, office supplies, shipping and logistics, facilities maintenance, and food/food distribution.
See how much you could be saving by utilizing our free Cost Savings Calculator tool and reach out to our team of sourcing advisors to learn. more.
