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6 Tips for Optimizing Indirect Spend

Jason Deign | May 9, 2016 | Procurement

Desperate to get control of your indirect spend and realize substantial savings? While properly managing indirect expenditure might seem like a daunting mission, it really doesn’t have to be that difficult… particularly if you follow these six top tips.

1) Vet Providers

When it comes to indirect spend, particularly for the procurement of business services, buying from trusted providers is important for quality control and because of the growing risk of procurement fraud.

If you have little knowledge of the supplier, their sector, or the region they’re based in, it might be better to buy from an existing resource that provides access to a global pool of providers, all of whom are subject to strict vetting procedures.

Through proper vetting procedures, you can rest assured that your selected provider is a reliable resource rather than a rogue trader.

2) Tender Competitively

Competitive bidding has been found to create advantages in a wide range of settings. So what could it do for your business? Cost reduction, while not the only advantage, is probably the foremost reason many companies consider competitive bidding.

Certainly, pitting competing suppliers head to head gives all participants a significant motivation to keep pricing keen. However, perhaps as or more important than pricing is the impact that competitive bidding can have on creating value.

Since best value is frequently a preferable outcome to lowest price, encouraging competition on this basis can often have significant advantages for your organization.

By opening up your tender to a greater number of providers, not only are you likely to get the best possible provider, but you’ll also procure their services for the best possible price – optimizing your indirect spend and getting more, for less.

3) Introduce Source-to-Pay (S2P)

Source-to-Pay (S2P) software is the term used for application suites that manage all aspects of procurement, from sourcing right through to purchase and payment. Typically they allow you to carry out a range of procurement functions through a single platform.

The most obvious benefit of S2P when applied to indirect procurement and purchasing is that it can greatly reduce the administration load your organization faces in managing indirect spend.

Importantly, though, it can also give you much greater visibility and control over your entire supply chain for indirect services and goods, making it easier for you to identify major sources of procurement waste, potential fraudulent activity and introduce measures to curtail unnecessary expenditure and maverick spending.

Identifying and Overcoming Procurement Waste

This white paper explores the causes of procurement waste within indirect spend and identifies cost reduction strategies to overcome inefficiencies and wasteful purchasing behavior within your business.

Download White Paper Now

4) Collect Information

“Generally, organizations do not have a procurement area dedicated to indirect spend,” notes the accountancy firm EY in its Indirect Procurement Optimisation report.

“This results in sporadic buying patterns, lack of preferred suppliers and a number of challenges such as a lack of meaningful data, fragmented supply chains and embedded local personal relationships with suppliers.”

Remedying this problem can prevent indirect spend from being seen as a low-value and low-risk area to manage, where “the potential cost savings are overlooked by management,” says EY.

5) Analyze Data

As Peter Drucker might say, once you start measuring you can start managing. If you are collecting information on your indirect spend then you should be analyzing it to see where opportunities for optimization lie, and where improvements can be made.

This analysis can range from a simple review of indirect spend categories, to check for excesses, through to an ongoing, in-depth spending and service delivery analytics program. Clearly, the more you analyze the more savings you can realize.

And the amounts you save can be significant. According to Everest Group Research: “Even a 5-10% reduction in non-core or indirect spend can translate into a 1-3% bottom-line impact.”

Research by BearingPoint also suggests that 10-15% in potential savings can be missed if no spend analysis programme is in place.

6) Calculate Potential Savings

In this age of apps and online tools you might not be surprised to learn that you can achieve a top-line indication of savings without having to implement a costly tracking and analysis system.

blur Group’s Procurement Waste Calculator, for example, can help you identify the potential savings your business could experience by reducing the waste and inefficiency inherent in your indirect spend, particularly within your indirect spend for business services.

All you need to provide is your industry, company size and revenue per annum. The results should give you an idea of likely savings. Then it’s up to you to introduce measures, such as those outlined above, to cut your costs and optimize your indirect spend.

Calculate Savings Now

Contact an Enterprise Solutions Manager today to discover how blur’s cloud software and managed services platform can help your organization to optimize its indirect spend and realize substantial savings.

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