How to Master Indirect Procurement
By Hugo Britt | April 13, 2021
Indirect procurement refers to the sourcing of goods and services that are not directly related to the manufacture of your organization’s final product or service. In other words, they’re the essential goods and services that keep your business running day-to-day.
Indirect procurement, or indirect spend, might include utilities (gas, electricity, water), office supplies, marketing costs, software costs, and travel expenses.
Indirect spend can account for 15% to 30% of an organization’s total spend, so it’s certainly worth bringing under control. But it’s not that easy. Indirect spend is almost always decentralized (meaning anyone in the business can make a purchase without going through procurement) and is a notorious area for maverick spend.
5 Ways to Master Indirect Procurement
Here are five ways to improve indirect procurement and achieve better indirect spend management within your organization.
1. Gain visibility into your indirect spend
Improve visibility into indirect spend? This is easy advice to give, but it’s not always an easy thing to achieve.
You’ll need to invest in spend analytics software that has the ability to analyze and classify every indirect purchase that takes place in the business. Procurement software is only as good as the data you feed it, however. That’s why it’s essential to take the plunge, clean up your existing data, and invest in good long-term data management practices if you want to get the most out of procurement software purchases.
Once you have visibility into your indirect spend, you’ll be able to perform an in-depth analysis and build a dashboard that will enable you to:
- Spot trends
- Look for cost savings opportunities such as bundling or consolidation, and
- See where maverick spend is happening most frequently.
2. Find out why maverick spend is happening
We get it – procurement professionals hate maverick spend, but it may help to think of it as an opportunity. Why is it happening? What categories suffer most from maverick spending?
If you have serial mavericks in your organization who constantly ignore procurement processes, one of the most valuable things you can do is to have a chat with them to find out why. Reasons may include:
- Unclear processes: if your processes are too complex, busy employees won’t bother following them. Look for ways to simplify.
- Clunky software: Purchasing software should prioritize UX: user-experience, ease-of-use, and aesthetics. For example, the travel websites people use to book their personal holidays (like Lastminute or Expedia) are a pleasure to use, but internal company booking systems for corporate travel are often complex, ugly, and hard to use.
- Education and awareness: Some of the most frequent excuses for maverick spend are “I didn’t know”, “I prefer this supplier”, or “I can get a better deal”. In all of these cases, the mavericks are unaware of the bigger picture such as the existence of an enterprise-wide contract with a stationery supplier or hotel chain. It’s up to procurement to make sure all stakeholders receive training as part of their onboarding, with frequent reminders.
3. Replace policies with systems
No matter how thorough or detailed your procurement policies may be, they can ultimately be ignored by a busy end-user who needs to make a quick purchase.
Replace policies with a user-friendly system that makes it unavoidable for stakeholders to comply. Using a compulsory eProcurement system, implementing spend approvals, catalogs or purchasing cards, for example, could all be an easier way for buyers to make purchases.
If you put spend approvals in place, make sure you automate this as much as possible to avoid creating a workflow burden.
eProcurement systems have the ability to not only monitor, but to limit and reduce excess indirect spend in your organization. One of their main benefits is to move “invisible” purchases (such as those taking place over phone and email) into a single, centralized system. They can also be configured to raise flags to get the procurement team involved in an unusual or high-risk purchase.
4. Change the spend culture in your organization
Nurturing a positive spend culture takes time and dedication. Ultimately, the goal is to have stakeholders treating company money like it’s their own.
This means encouraging people to be careful and thoughtful in their purchasing decisions, not automatically choosing the most expensive option, and seeking multiple quotes before making a purchase.
5. Partner with a Group Purchasing Organization (GPO)
Another option is to partner with a group purchasing organization. A GPO will help balance your indirect procurement and reduce supplier risk while saving you money, time, and effort. This is achieved by leveraging billions in buying power to unlock savings for indirect categories including travel, office supplies, and shipping.
Contact Una for an obligation-free chat about how we can help you master indirect procurement.