How to Overcome the Top 5 Challenges of Managing Indirect Spend
By Hugo Britt | August 24, 2021
Indirect spend, sometimes referred to as tail spend, is an often-overlooked area for companies of all sizes. Whether you’re a startup or a large enterprise, the challenges of keeping tabs on your smaller expenses year after year often take a backseat to big-ticket items such as manufacturing costs.
However, the lesser expenditures can add up fast, and if left unchecked, can undercut your profit in a big way. Here are five common challenges of managing indirect spend, and how you can overcome them.
5 Challenges of Managing Indirect Spend
1. Lack of spend data
Are contracts and agreements buried in various employee inboxes? Maybe you have so many employees spending autonomously that you don’t know where to begin. Collecting all of your spend data may seem overwhelming, but it doesn’t have to fall on one person or department. By leveraging spend management software, each spender can be held accountable to upload their receipts, invoices, contracts, and terms within one easy-to-use platform that not only stores spend data, but does the hard work of analysis and reporting for you.
With procurement at the helm of a software solution, compiling the necessary data to analyze your organization’s spend can become automated and streamlined. But it’s crucial to implement organizational policies to bring everyone in the company on board, which leads us #2 in our list of top challenges.
2. Lack of spend policies
Do you have policies and procedures in place to curb unauthorized spending and protect your organization? As companies experience growth, pausing to develop spend management policies may not be at the top of a priorities list. But without a framework in place to protect your company’s finances, uncontrolled spend can actually inhibit growth as funds trickling out undercut profits rolling in.
To begin creating policies and procedures, take a look at the current state of spending in your organization. By analyzing what has gone wrong in the past, you’ll be able to create a checklist to begin drafting policies to prevent reoccurrence. And there are plenty of helpful articles to guide you. With clear processes outlined, employees can have the guidance and protocols needed to make the right purchasing decisions.
3. Maverick spending
Even with policies in place, many businesses still run into the issue of rogue spend. Do you have employees who don’t follow the organizational policies and procedures or stay within their budget? Maybe it’s a department working on such high priority work that they make purchases whenever their demand requires it. Or perhaps a top-performer is allowed to make exceptions to rules to achieve results.
Whatever the case may be, maverick spending left unchecked can end up costing thousands of dollars or more in excess costs that could have been avoided. Have the hard conversations with maverick spenders to first learn why it’s happening, and communicate the impact curbing such behaviors can have for the greater good of the organization.
4. Lack of data analytics
Once you’ve wrangled all of your organization’s spend data, it’s time to crunch the numbers. If you’re using basic tools or spreadsheets to keep track of your data, investing in spend analytics technology will change your life. According to McKinsey, spend analytics tools can reduce product and service costs from 10-25%, making them well worth the investment.
Because there are so many technology options, it’s important to research what kind of analytics and reporting your organization needs first. From predictive analytics to data hygiene and integration with your current tools, there are many aspects that you’ll need to consider when choosing a platform. The good news is, there are plenty of resources to help you learn what questions to ask and how to ensure you get the highest ROI from the software you choose.
5. Lack of spend metrics and KPIs
Once you have analytics powered by the right software for your company, you’ll need to understand how to measure and optimize spend. Putting KPIs in place means understanding how much you should be spending on products and services, where cuts can and should be made, and how to track supplier performance.
Figuring out how to measure performance can be daunting, but there are plenty of consultants and tools to help you determine KPIs and set goals for your organization. A group purchasing organization that offers consulting services, like Una, is a great resource to help put the pieces of this puzzle together for your organization.
If you’re ready to take on the challenges of indirect spend management, reach out to Una for a free spend analysis and consultation. Our team has in-depth experience in all aspects of procurement, from getting your data in order to analyzing and improving your contracts and agreements.