6 best practices to take control of and optimize indirect spend

Nov 26, 2024

finance

Are you aware of the hidden costs in your organization? Expenses not directly tied to a company’s core business activities often go unnoticed, while they can account for up to 40% of the total expenses. Time to take control of this ‘indirect spend’, optimize it, and turn it into an opportunity to fuel growth! Discover how the right processes and tools can make all the difference.

From office supplies and maintenance to operations, marketing and the ever-expanding IT expenses: indirect spend covers a vast array of goods and services. These costs aren’t directly linked to your core operations and may seem to have less of an immediate impact. But as they are crucial to keep your business running smoothly, you’d better track and control them. The tricky part: managing indirect spend effectively, can prove difficult.

What makes controlling indirect spend so challenging?

“Indirect expenses involve numerous transactions across business units and departments,” explains Yves Thijs, procurement expert at delaware. “As a result, data is scattered among teams, vendors, and systems. If that data is not consolidated, procurement teams struggle to gain visibility into costs, analyze the expenses and uncover opportunities for cost savings.

Additionally, indirect costs vary from large to small, are unpredictable, and often involve a broad range of suppliers and spend categories. That too, makes it significantly more challenging to control, monitor and optimize them compared to direct expenses.”

Plenty of reasons to start managing indirect costs

“That’s unfortunate,” Yves continues, “because managing indirect procurement brings significant benefits, starting with cost savings. With clearer insights into spending categories, procurement can eliminate redundancies, consolidate purchases, streamline their supplier portfolio and then negotiate better pricing and services.

Additionally, managing indirect spend streamlines and simplifies the procurement process, reducing the time and resources for purchasing activities. This also enhances collaboration between departments, improving overall efficiency.”

Yves also highlights the benefits of increased compliance and employee satisfaction: “By implementing stricter purchasing procedures and standards, businesses can mitigate the risks of fraud, non-compliance, and potential reputational damage. For employees, having clear processes in place provides confidence and peace of mind, knowing they have the tools and resources they need to perform their roles effectively and efficiently.”

With clearer insights into spending categories, procurement teams can eliminate redundancies, consolidate purchases, and streamline their supplier portfolio.

Yves Thijs, Manager Supply Chain Transformation, delaware

6 best practices to unlock the hidden value in your indirect spend

Ready to start transforming your indirect spend processes? Make sure to combine processes, technology and people along the way, says Yves: “At delaware, we believe that true transformation only happens when technology works hand in hand with processes and people.”

Keeping that in mind, he recommends to

Identify indirect spend categories, and analyze your indirect spending data. This will help you pinpoint where most of your budget is going and which suppliers are driving up costs.
Evaluate your existing procurement processes and patterns to identify opportunities for improvement and streamlining. For instance, you could eliminate redundancies in products or services, consolidate suppliers, refine workflows, appoint ambassadors, etc.
Standardize procurement processes across the organization to ensure consistency and boost efficiency.
Develop a comprehensive procurement strategy with clear goals, performance metrics, and a plan for continuous improvement.
Involve your employees in the change process. Many employees contribute to indirect costs, so success depends on everyone getting on board with the changes. Involving them in the change process will make them advocates for the new structure, policies and culture you’re creating.
Implement procurement technology solutions like procure-to-pay automation, e-procurement, and spend analysis tools to streamline indirect procurement processes.

At delaware, we believe that true transformation only happens when technology works hand in hand with processes and people.

Yves Thijs, Manager Supply Chain Transformation, delaware

Procure to pay automation streamlines operations, reduces errors, and improves compliance.
Cloud-based procurement solutions offer scalability, flexibility and real-time access to procurement data, facilitating better spend management.
Spend analytics tools provide detailed insights into spending patterns, helping you to spot trends, assess supplier performance and identify areas for cost reduction and efficiency improvements.
Machine learning and AI can automate spend analysis, classify and categorize spending, and identify savings opportunities by recognizing patterns and anomalies.
Big data analytics enhance visibility into indirect spend, enabling more informed decision-making and strategic sourcing.

start transforming your processes today

In short, mastering indirect spend is a great way to cut costs, optimize processes, make every stakeholder happy and, as such, boost your bottom line. With the right approach and tools, indirect expenses can shift from hidden cost to an enabler for growth. Start reviewing your existing approach today!