Supply Chain Efficiency

4 Key Strategies for Wrangling your Indirect Spend

4 Key Strategies for Wrangling your Indirect Spend

Companies can be very good at managing the costs that go directly into their manufactured goods, but may be unaware of or unsure how to tackle the other costs of doing business – their indirect spend. This area can seem like the Wild West with every group working with different vendors and purchasing supplies that range from paper clips to airplane travel.

This was the case for a regional packaged food manufacturer I spoke with recently. Their factories are highly efficient operations with the latest in technology to produce high quality and tasty foods. However, they didn’t realize they could bring the same level of focus and control to their expenditures across the rest of their company.

What is “Indirect Spend”?

Indirect spend consists of all the materials and services that businesses need in order to operate. This can include areas like marketing and other professional services, travel, IT and HR, facilities, utilities, and maintenance, as well as basic consumables such as paper, paper clips and other office supplies.Indirect spend

While it may seem like this area of spend wouldn’t be significant, especially compared to expenditures directly related to producing finished goods, recent studies have found that indirect spend can account for up to 50 percent of a company’s purchases and manufacturers specifically can spend 20 percent or more of their total revenue on indirect expenditures.

Why Indirect Spend Management is Such a Challenge

Unlike direct expenditures, indirect spend may:

4 Key Strategies for Wrangling Indirect Spend

While managing indirect spend is more challenging, the potential impact on the business makes it worth the effort. There are some initial steps you can take to start to bring those expenditures under control:

Indirect spend is the next frontier of spend optimization

While your company may have optimized every cent spent with direct suppliers, Lean Six Sigma’d the heck out of your manufacturing operations, and tightened your supply and delivery timelines down to the hour, indirect spend presents the next frontier in opportunity for increased efficiency and cost control.

The packaged food manufacturer I spoke to is considering using our OneSCM® management solution, with an easy-to-access supplier console, configurable workflow automation and close loop procure-to-pay processes, to improve spend visibility, reduce manual workload and improve the efficiency of their indirect spend.

If you have questions about how to bring your indirect spend under control, please email me at godfrey.huguley@takesolutions.com or follow me @TSC_Godfrey. And if you have a topic you’d like me to cover in this series on “supply chain pain,” please send me a suggestion!

 

TSC-blog-share TSC-blog-tweet TSC-blog-contact