Going through business uncertainty? 3 strategies to cut costs & discover savings in your indirect spend
In contrast to direct procurement, indirect spend includes everything that goes into running a business that isn’t directly tied to the end product, such as maintenance, repairs, and operations (MRO), marketing, facilities, consumables, fleet, freight, travel and IT. Although it can make up as much as 50% of a company’s total purchases, it doesn’t often get the attention it should. The problem with ignoring indirect spend, however, is that you could be missing out on savings opportunities that can make a real impact on your organization’s bottom line, especially during market volatility and business uncertainty.
Related: Purchase Price Variance (PPV) – It is Really Simple
In order to access these savings, you need to accurately size and scope your indirect spend first – but challenges with processes, capabilities, and data can hinder that. By getting your indirect spend under control, you can tap into potential savings for your organization.
By getting your indirect spend under control, you can tap into potential savings for your organization.
Read on to learn three ways you can get started in finding savings in your indirect spend:
- Improve your spot buy process
Anywhere from 20-40% of indirect purchases are one-off purchases, or spot buys. But having better control of the spot buy process can lead to savings. Ensure your organization has a comprehensive catalog and that requesters know to search it before making a spot buy to determine if similar or exact items have already been sourced. Furthermore, is your buying team equipped to send orders to preferred suppliers and optimize for the best price at scale? If not, you may be losing out on valuable savings. You can even set up a controlled process for buyers to add new items to the catalog as they are requested to eliminate the need for future spot buys of the same item.
- Automate procure-to-pay (P2P) process
You can better control costs, improve visibility, and increase collaboration by making the P2P process simpler, standardized, and automated. This includes requisitions, purchases, receipts, payments, and accounting of all products and services. What’s more, by accurately managing supplier information and communicating with appropriate suppliers throughout the P2P lifecycle, it can also enhance relationships with your suppliers.
- Become more strategic in your sourcing efforts
Making your sourcing efforts more strategic can have a major impact on your organization. Taking a disciplined approach to supply market analysis will provide you with the best possible values in the marketplace. It will also lead to sustainable savings and reduced time in the P2P lifecycle. Moreover, it will help you identify overall procurement performance improvement opportunities.
These are a few possible ways your organization can cut costs and drive improved savings, but they certainly aren’t the only ones. To learn four more strategies, discover the potential savings you can uncover in different indirect spend categories, and find out how to implement technology to optimize indirect spend, read the full guide for procurement leaders today!