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 blog I will be sharing some of the key measures procurement groups can
adopt to tame their indirect spend.
- 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.
- 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.
- 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.
- Continue to work toward improving spend visibility, analytic 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.
- Network and benchmark with procurement teams in other companies to understand which indirect categories and which specific supplier, 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.