6 Practical Steps to Improve Indirect Spend Management

Indirect spend management covers the goods and services required to support business operations that are not directly tied to production. 

In many organizations, indirect spend represents 25–40% of total expenditure but is harder to control due to fragmented data, decentralized purchasing, and multiple stakeholders.

Effective indirect spend management depends on three fundamentals:

• Spend visibility across categories, suppliers, and business units
• Clear and business-relevant category structures
• Ongoing engagement with internal stakeholders

This guide describes six practical steps procurement teams use to improve decision-making and control across indirect spend categories.

Want more category management tips? Read here!

Examples of indirect spend

Indirect spend categories vary by industry and operating model, but they typically account for a significant share of total company spend.

Common indirect categories include:

• Marketing
• Communications
• Human Resources
• Facilities
• Security
• Utilities
• Office supplies
• Travel expenses
• Professional services (insurance, legal, and consulting)

Why is indirect spend difficult to manage?

Indirect spend is harder to control than direct spend because purchasing authority is distributed across departments and roles. Unlike direct materials, indirect categories often lack standardized demand patterns, specifications, and ownership.

Common challenges with indirect spend include:

• Low adoption of spending policies.
• Limited spend visibility and inconsistent data quality
• Incorrect or overly generic spend classification
• A large number of suppliers and stakeholders.
• Fragmented budgets and purchasing authority
• Resistance to change due to weak stakeholder buy-in
• Maverick spending eading to contract leakage and missed savings
• Procurement teams acting reactively rather than as advisors
• Supplier performance influenced by informal relationships rather than data

Because of this complexity, indirect spend often receives less strategic focus despite its savings potential.

6 practical steps to improve indirect spend management

Effective indirect spend management starts with visibility, structure, and stakeholder alignment. The following six practices address the most common gaps.

Step 1. Indirect spend visibility

The first step in managing indirect spend is spend visibility. 

Procurement teams need a consolidated view of spend across suppliers, categories, and business units, as well as the ability to analyze data at a detailed level.

Key actions include:

• Combining spend data from multiple systems and sources
• Standardizing classification and categorization
• Using analytics to identify patterns, risks, and opportunities

Automation, AI, and machine learning can support data cleansing and classification, making indirect spend easier to analyze and manage over time.

Step 2. Category knowledge and taxonomy alignment

Clear category definitions support better sourcing decisions and supplier management.

Effective category management requires:

• Understanding supply markets and available suppliers
• Identifying key suppliers within each sub-category
• Aligning spend taxonomy with how the business actually operates

Ensure your spend taxonomy reflects your business categories. When your taxonomy is relevant, it is easier to act on consolidation opportunities and benefit from economies of scale. Misaligned taxonomies, by contrast, obscure savings potential and complicate stakeholder conversations.

Step 3. Stakeholder engagement and alignment

Indirect spend management depends on collaboration rather than enforcement. Procurement outcomes improve when discussions focus on enabling business objectives rather than leading with cost targets alone.

Strong engagement practices include:

• Involving stakeholders early in sourcing and contracting activities
• Understanding business objectives, terminology, and constraints
• Preparing discussions with accurate and relevant spend data
• Sharing insights at the sub-category, function, and location level
• Inviting feedback and incorporating business expertise

Procurement analytics tools help identify patterns that support informed sourcing decisions and supplier selection.

Step 4. Create an indirect sourcing plan

A sourcing plan translates spend analysis into documented goals and actions. Stakeholder involvement during planning helps secure alignment and compliance during execution.

When everyone understands the big picture and goals, it's easier to follow agreed-upon rules and processes.

Agreed purchasing guidelines and category policies support consistent decision-making and reduce exceptions. Education and dedicated support further improve adoption across the organization.

A sourcing plan should document:

• Spend analysis findings
• Category objectives
• Defined actions, timelines, and responsibilities

Step 5. Key performance indicators (KPIs)

Develop KPIs that support your category goals. KPIs are designed to help you reduce risk and maximize value for money.

Common indirect spend KPIs include:

• Supplier compliance with contractual terms
• Service levels and on-time delivery
• ESG-related metrics, such as emissions or audited spend coverage
• Total cost of ownership (TCO) by category

The objective is to improve procurement return on investment while reducing risk and inefficiency across indirect spend.

Step 6. Employ indirect spend forecasting

Spend forecasting combines historical spend data with demand signals and external factors. It supports forward-looking sourcing decisions and budget planning.

While disruptions such as inflation or supply constraints cannot always be predicted, centralized and near-real-time data enables faster response and adjustment of sourcing strategies.

Improving indirect spend management through structure and alignment

Indirect spend improvement relies less on strict centralization and more on consistency. Organizations that establish reliable spend visibility, align categories with business needs, and involve stakeholders early are better positioned to manage indirect spend over time.

Structured sourcing plans, relevant KPIs, and basic forecasting help shift indirect spend from reactive purchasing to managed decision-making. Progress typically comes from shared data, agreed priorities, and applying the same principles across categories rather than one-time initiatives.

About this guide

This guide is based on over two decades of work by Sievo with enterprise procurement teams managing indirect spend across global operations. The framework reflects practices commonly used by organizations that have transitioned from fragmented purchasing to structured indirect spend management.