Identifying and Ending Indirect Spending Leaks

identifying and end indirect spend leaks

It is a statistical fact that up to 15% – 20% of a company’s annual revenue, is generally wasted due to lacking control. With the ever-increasing competition in the supply chain market, organization heads are now looking to what can be called trimming the fat from their budgets, to maintain themselves in the competition. Hence, for most businesses, one of the most common objectives for their procurement team is to look for successful methods of controlling indirect spend.

This brings us to the first question, what exactly is indirect spend? The answer is simple, if direct spend is termed as the procurement of products/services that materialize into the final product, then indirect spend broadly classifies as everything else. For e.g. stationary, recruitment, IT systems etc. the list is exhausting and hence, a draining weight on the expenditure books.

Most Finance executives mistakenly treat indirect spend as a minor purchase, for example, a paper cheque used to make purchases may seem an inconsequential singularity, but when scaled up to the level of an entire organization, these small purchases multiply alarmingly more in significance.

It has been generally observed that indirect spend in companies is managed independently and pertains to specific functional areas only, with a majority of supply management units keeping the information/data siloed. Procurement professionals, hence, lack the visibility and capability to control indirect spends, even though they play a pivotal role in the product/manufacturing group. In a 2017 survey it was purportedly reported that instead of organizing indirect spends uniformly across all branches, organizations tend to look at the problem regionally, which eventually translates into lack of visibility.

Thus, one of the key ways to reduce costs and break down inefficient/prohibitive silos is to aggregate and centralize all data into a single, multi-departmental system, which would also help in growing a businesses’ analytic capacity exponentially; giving an insight into the real-time financial drain of the budget. Hence a digital overhaul, which would mean relying on digital data as opposed to paper documentation, would help in the identification and subsequent reduction of spending discrepancies, without the addition of unnecessary overhead; thus, streamlining the procure-to-pay process and increasing the accuracy/agility with suppliers. The added accuracy/efficiency, so achieved in the process will actually free up time and resources while cutting down significantly on unnecessary costs/ indirect spend.

Have a point of view on the topic, that you’d like to share? Tell us more about how you think organizations can tackle the problem of indirect spends, in the comments section below.

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