Indirect spend often accounts to 50% or more of a company’s total purchases and are characterized by large supplier base, low volume purchases and a diverse stakeholder spread across the organization. With almost two-thirds of procurement organizations influencing less than 70% of indirect spend, gaining influence over indirect spending will be the key to achieving sustained – or increased – savings contributions for most procurement groups. In this 2 part blog series I will be sharing some of the key measures procurement groups can adopt to tame their indirect spend.
1. Pursue and issue corporate policies mandating that specified work streams be used in order for suppliers to be paid and conduct comprehensive communications campaigns to roll out and periodically reinforce these policies.
2. Classify and segment spend categories into specific work streams; then partner with finance and accounts payable to devise explicit response and escalation protocols for addressing all parties — buyers and suppliers — to transactions taking place outside of specified work streams. For example, pay first instance with warning, pay second instance with disciplinary action or note in personnel file, decline to pay third instance and any transactions thereafter.
3. Invest in eProcurement technology solution, with automated transaction classification capability. State-of-the-art eProcurement solutions are already capable of automatically — or at least semi automatically — analyzing and classifying transactions using users’ free-word item search terms.
4. Continue to work toward improving spend visibility, analytics and reporting to lay groundwork for future business cases; use eRFx and other efficient supplier information management tools to support in-depth market scans that identify game-changing new entrants and disruptive forces that might be leveraged to generate cost savings, improved service levels and so forth.
5. Network and benchmark with procurement teams in other companies to understand which indirect categories — and which specific suppliers — they have succeeded in moving toward more structured competitive sourcing and spend management disciplines; prioritize to leverage work already done by trailblazers in such indirect spending categories as telecommunications hardware and services, contingent workforce, advertising, marketing and communications services, legal services, human resources and so forth.
Stay tuned for the remaining 5 measures. In the meanwhile share your thoughts on the measures you adopt to effectively manage indirect spend in your organizations.
