Are you often taken aback looking at the total value of your indirect spend at the end of the quarter or financial year? It is not uncommon – most procurement professionals find that their indirect spend tends to go out of their hands.
The reason for this is the lack of spend visibility.
Especially in industries where the business and procurement teams concentrate on savings from direct spend, indirect spend is overlooked and tends to pile up.
Your second thought would be “I could have saved on a lot!”, and that is correct!
Studies have shown that at an average, indirect spend consists of 45% of an organization’s total spending, and a top-performing team can expect cost savings between 20% and 40%. The opportunity for savings in your indirect spend category is enormous and can affect your bottom line directly.1
Third and probably the most crucial part is how do you go about making those savings? With the lack of visibility, it is not easy to envision how you would make those savings as most categories might look essential.
The secret lies in not cutting down your requirement but in managing them. There is no one significant activity that will give you the answer. You will need to employ multiple processes and tools and shift your view on team management to realize the savings.
Indirect spending comprises several different categories, such as marketing, rent, capital expenditure, private-label packaging, facilities, outsourced services, and others. Hence, the total potential for savings for an average performing team is usually 15%. Considering the magnitude of the spending, this number can be quite high. 3
Top Performing Teams
By just simple changes to their outlook on indirect spending, many top procurement teams can realize substantial savings: Delta airlines was able to save $11 million on hotel bookings in one quarter by just employing a software solution that revealed financial issues.
World-famous motorcycle brand Harley-Davidson saved $4 million by outsourcing all indirect spend to just 3 suppliers. Cadence design systems reported $6 million in savings by investing in a technology that provided insights and cost-saving opportunities. 2
Let’s get into it, how can you save –
If you have any other strategies for saving in indirect spend, do let me know in the comment section below.
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