Indirect Procurement Mistakes to Avoid
By Hugo Britt | February 10, 2022
As their procurement function matures, every organization will eventually go through the journey of bringing indirect spend under control. At Una we’ve seen lots of inspiring success stories, but we’ve also seen a lot of mistakes being made.
Indirect spend refers to the purchase of goods and services that do not become part of an organization’s final product or service. Generally, this means anything necessary for day-to-day operations such as office supplies, IT software and support services, travel expenses, warehousing, and utilities.
6 Indirect Procurement Mistakes to Avoid
1. Downplaying the importance of indirect spend
2. Failing to track indirect spend
Indirect spend is impossible to track if the data is spread across disparate sources such as emails, spreadsheets, and pieces of paper on stakeholders’ desks.
By investing in procurement technology and mandating that all indirect purchases are made through a centralized system, organizations can create a single source of truth for indirect spend data. This enables spend analytics and the identification of wastage, duplicate purchases, maverick spend, and poor value-for-money.
3. Not managing risk in indirect spend
Due to the high number of suppliers, lack of input from the procurement team, and low visibility, unmanaged indirect spend is rife with risk. Spend Matters identified three types of risk:
- Operational risks: For example, even a minor software purchase can expose the whole company to a major cybersecurity breach.
- Compliance risks: While direct suppliers usually have to provide evidence of regulatory compliance as part of the RFP process, indirect suppliers may not have this level of scrutiny. This exposes the organization to the risk of engaging a supplier that doesn’t comply with laws such as the Anti-Money Laundering Act.
- Reputational risks: Again, a lack of visibility could mean your organization is unknowingly purchasing from a supplier engaging in ethical, environmental, or human rights breaches. The fallout from such a breach can damage the purchasing company’s reputation.
4. Neglecting supplier relationships
Why should direct suppliers get all the attention? Even though indirect procurement has many low-volume or one-off purchases, spend analytics will inevitably reveal an opportunity for consolidation with particular suppliers.
For example, by consolidating all your office stationery supplies with one vendor, your procurement team will be in a better position to negotiate volume discounts and create an ongoing partnership that will help guarantee supply and improve service levels.
5. Failing to get the whole team engaged
Bringing indirect spend under control requires every stakeholder to get on board. This is change-management 101: you can upgrade your technology and optimize your processes, but unless you address the “people” side the equation, the change will fail to stick.
With indirect spend, this can lead to problems including people failing to use the centralized purchasing system, high levels of maverick spend, unrealized cost savings, and increased risk.
6. Trying to tackle indirect spend alone
Even with the help of the latest procurement technology, there’s no denying that indirect spend management is complex and difficult. Trying to keep everything in-house and failing to ask for expert help reduces your chances of success.
To unlock truly impressive cost savings in indirect procurement, the secret is to leverage your buying power. Businesses can gain access to better contracts and discounts than they could negotiate on their own by partnering with a group purchasing organization like Una.
Una members have access to a robust supplier portfolio offering pre-negotiated contracts across several spend taxonomies. This means we’ll be able to find savings and spend management solutions in multiple spend categories – corporate services, office supplies, shipping and logistics, facilities maintenance, and food/food distribution.
See how much you could be saving by utilizing our free Cost Savings Calculator tool and reach out to our team of sourcing advisors to learn. more.