Indirect procurement spend is the sourcing of goods and services not directly related to the manufacturing of products. Indirect spend refers to the goods and services that support, maintain, and develop business operations.
However, managing indirect procurement is complex: more suppliers to manage, decentralized purchasing, a large number of stakeholders, varying maturity levels, and a higher potential for maverick spend.
Indirect categories often have a greenfield of sourcing opportunities, the potential for consolidation, and untapped cost savings. So don't give up!
In this blog, we'll share 6 tips on how to improve your indirect spend management.
Indirect spend visibility
Know your spend categories
Know your stakeholders
Indirect sourcing plan
Key performance indicators (KPIs)
Indirect spend forecasting
Examples of indirect spend
Indirect spend categories depend on your industry and the nature of your business. It may account for between 25% -40% of your company’s total spend.
Indirect categories include:
Professional services (insurance, legal, and consulting)
So, here's our advice for managing indirect spend.
1. Gain indirect spend visibility
The first step in managing indirect spend is spend visibility. You need to be able to see the big picture as well as slice and dice the data to the smallest level of detail.
Gather and combine multiple datasets and sources. AI and machine learning can help in tracking, analyzing, and automating the various steps in the classification and categorization of indirect spend.
2. Know your categories
Get to know your supply markets and available suppliers. Business stakeholders may provide you with in-depth market knowledge.
Know who the key suppliers are in each sub-category or commodity group to achieve better contract terms and develop solid supplier partnerships.
Ensure your spend taxonomy reflects your business categories. When your taxonomy is relevant, it is easier to untap consolidation opportunities and benefit from economies of scale.
3. Know your stakeholders
Procurement often comes in with a cost savings, compliance, and risk mitigation agenda. What if you started the discussion with how you can help your stakeholders succeed and achieve their business goals?
Prove the value of your contribution with hyper-relevant data and timely insights. Build trust and share your knowledge.
Analytics tools help you find actionable insights from your data on a sub-category, function, and location level. Spend insights help find patterns on which to base sourcing decisions and supplier selection. Share your spend analysis with relevant stakeholders and welcome their input.
The process of getting stakeholders engaged should look something like this:
Start early--engagement is key to sourcing and contracting success.
Understand their business goals and terminology.
Invest time in building relationships and understanding their challenges.
Know your spend data in preparation for discussions.
Share success stories with the business.
4. Create an indirect sourcing plan
Document spend analysis findings and insights in a strategic sourcing plan. Define your category goals and the steps you need to take in order to get there. Engage your stakeholders in the planning so you will have their management buy-in.
When everyone understands the big picture and goals, it’s easier to follow pre-agreed rules and processes too.
Some guidelines and policies are needed to manage and optimize indirect spend. Align and agree on purchase policy with the category stakeholders.
Investing in dedicated support and educating a user community ensures support for achieving category goals and delivering more value to the business.
5. Set key performance indicators (KPIs)
Develop KPIs that support your category goals. KPIs are designed to help you reduce risk and maximize value for money.