When it comes to the success of businesses, cost management is a key factor. Contrary to the direct costs associated with goods or services, the indirect costs associated with the operation of the business can often be overlooked- and yet, these costs can make up a large percentage of a company’s overall spending and total cost of ownership. As such, effective management of the indirect spend is critical to long-term profitability and the growth of the business. In this blog post, we will be taking a look at the importance of managing indirect spend and how businesses can effectively manage their indirect spend. We will be examining the steps businesses can take to assess and manage their indirect spend, identify areas for cost savings, create a procurement strategy, and develop a supplier base. This will help businesses to take advantage of the savings opportunities associated with indirect spend, and ensure that their processes are as efficient and cost effective as possible. So let’s dive in and explore how businesses can effectively manage their indirect
1. Leverage Technology Solutions
Businesses can leverage technology solutions to effectively manage their indirect spend. With the right software, organizations can automate processes like invoice capture and purchase order reconciliation, helping to ensure that lead times and payment terms are met. Additionally, companies can use technology to provide visibility into their indirect spend, enabling them to identify areas for cost savings and supplier consolidation. Technology solutions also provide enhanced data security, ensuring confidential information is not shared with unauthorized personnel.
2. Clearly Define Policies & Procedures
To effectively manage indirect spend, businesses should begin by clearly defining policies and procedures. Policies should outline the acceptable parameters for sourcing and purchasing goods and services—such as acceptable vendors and payment methods. Procedures should explain the step-by-step processes which must be followed to comply with the stated policies. Effective policies and procedures should be enforced consistently and communicated to all relevant stakeholders, including internal and external procurement personnel, budget owners, and vendors. A well-defined and communicated policy and procedure framework will help to ensure that indirect spend is managed in the most economical way possible.
3. Utilize Automated Approval Systems
Automated approval systems are a valuable tool that businesses can use to effectively manage their indirect spend. By utilizing such a system, businesses can streamline the approval process for purchases, enabling them to move quickly when making decisions. Automated approval systems allow businesses to set thresholds for purchases, ensuring that any purchase over a certain amount is checked against corporate policy before it is approved. Additionally, automated approval systems enable businesses to utilize pre-approval processes, which can help to ensure that all purchases adhere to corporate policy. Automated approval systems can be a helpful tool when it comes to managing indirect spend and ensuring that corporate policy is adhered to.
4. Set Spending Limits & Budgets
Setting a spending limit and budget is essential for businesses to effectively manage their indirect spend. It is important to create a budget to help prioritize and allocate funds for specific indirect costs such as travel expenses, office supplies, and communications. Setting limits for these categories will help businesses to avoid overspending and will help to keep essential costs under control. Additionally, it is important to track and monitor changes in spending to ensure that the limits are being followed and that spending is allocated properly.
5. Regularly Monitor & Track Expenditures
To effectively manage indirect spend, businesses should develop a habit of regularly monitoring and tracking their expenditure. Establishing an appropriate budget and tracking actual spending helps to identify areas of overspending. With the help of comprehensive reporting solutions, businesses can gain deeper insights into their spending and make sound decisions that are in line with the objectives of the organization. Additionally, monitoring and tracking expenditures on a regular basis will also help businesses to identify areas for cost optimization and better manage their financial resources.
In conclusion, organizations must put effort into understanding and managing their indirect spend. To start, businesses should have a clear understanding of the scope of their indirect spend and the categories of indirect spending. Additionally, businesses should use data to benchmark their current indirect spend and set targets for future savings. Finally, they should create visibility into their indirect spend by using a dedicated procurement team, technology and processes to optimize their indirect spend and ensure they are getting the best value for their money.