Boost Category Efficiency With Targeted Indirect Procurement Strategy
- Centralizing indirect spend activities under procurement and leveraging enabling technologies streamlines processes and improves negotiating leverage with suppliers.
- Developing category-specific indirect spend strategies that factor in the unique characteristics and opportunities within areas like facilities, IT, marketing and travel maximizes value and efficiency improvements.
- Continuously improving indirect spend management through data analysis, process simplification and automation helps eliminate redundant steps and drive efficiencies.
November 23, 2023 | Procurement Strategy
Unlike direct materials used in manufacturing, indirect spend encompasses operating expenses not tied to production. Major categories include:
- Facilities – Real estate, maintenance, utilities, security
- IT – Hardware, software, telecom, cloud computing
- Marketing – Advertising, PR, events, promotional items
- Professional services – Legal, auditing, consulting, training
- Travel – Airfare, hotels, meals, transportation
- Contingent labor – Temporary contractors, freelancers
While direct spend always warrants close attention, optimizing indirect procurement category strategy also presents tremendous opportunities for savings. Some key strategies that can boost organizational efficiency include:
1. Develop Tailored Category Plans
Taking a one-size-fits-all approach to managing indirect spend is suboptimal. Instead, analyze the unique dynamics within each category to devise targeted strategies that maximize value.
For facilities, consolidation of suppliers and bundling of service demands can help procurement leverage economies of scale. Renegotiating long-term maintenance and utility contracts around updated requirements using internal benchmarking and external market pricing research can yield significant savings. Deploying energy management analytics provides visibility into usage patterns and opportunities to optimize.
Within IT, rationalizing software applications and consolidating around core platforms reduces licensing and support costs. Negotiating enterprise-wide deals with key technology partners improves commercial terms versus regional, ad hoc purchasing. Transitioning to a modern procurement platform enhances visibility and compliance for indirect IT purchases.
For marketing, centralizing agency spending under procurement enables consolidated negotiating leverage versus fragmented engagement across business units. Reducing the number of agencies and production partners simplifies management while aggregating higher volumes for better rates.
Travel requires ensuring employee compliance with managed travel and expense policies given decentralized booking. Negotiating discounted air, hotel and rental car rates through corporate programs, then monitoring usage and leakage, improves compliance and captures savings. Automating expense reporting heightens transparency and enforces adherence.
By developing category-specific strategies factoring in the unique characteristics and opportunities within each area, procurement can maximize efficiency gains.
2. Centralize Control Under Procurement
Too often indirect spending occurs across disconnected groups like regional offices, business units and functions. This leads to fragmented purchasing and siloed data. Centralizing activities under one unified data model for procurement operations enables clear visibility into enterprise-wide spend and aggregated negotiating power with suppliers. It also facilitates standardization of processes and company-wide policies to promote consistency.
3. Leverage Enabling Technologies
Deploying the right source-to-pay software enables procurement teams to streamline indirect spend management and gain transparency into requests. Contract repositories establish visibility into agreements while ensuring compliance. Guided buying catalogs enforce policy adherence for indirect purchases. Today’s AI-powered procurement platforms allow enterprises to accelerate cycle times while enhancing accuracy, and drive data-driven decision making around opportunities through advanced analytics.
4. Manage Supplier Relationships
Carefully managing key supplier relationships is critical for maximizing value from indirect spend. Regularly assess supplier performance on criteria like pricing, quality, delivery and service levels, and renegotiate contracts to improve terms. Rationalizing suppliers per category can enhance bargaining power.
However, it’s important to avoid being dependent on a single vendor.
5. Implement Cross-Functional Collaboration
Indirect sourcing decisions often cross multiple functions like Facilities, IT, Marketing and HR. Fostering collaboration, knowledge sharing and clear communication across stakeholders involved in procurement decisions improves outcomes, so it’s worthwhile to align on priorities and objectives.
6. Focus on Continuous Improvement
Regularly review indirect spend processes to identify root causes of inefficiencies. Eliminate redundant steps that don't add value. Simplify and standardize activities around supplier selection, onboarding, ordering, invoice processing and reporting. Automate processes where possible and continuously refine through data analysis.
Strategically optimizing indirect procurement yields efficiency gains for the enterprise.
Optimizing indirect procurement category strategy tailored to each category's dynamics and leveraging enabling technologies will drive meaningful efficiency gains across operating expenses. Managing indirect procurement strategically presents a sizable opportunity for enterprises to enhance operational performance, control costs and unlock new value from indirect spend categories.
