Five reasons why Finance teams should never overlook indirect spend
Indirect spend is a chronically underused tool in many Finance teams and is often seen as a ‘messy’ area of the business.
But there are five key resons why it shouldn’t be overlooked:
1. It can have a material impact on your bottom line
No, really. Estimates are that a mere 5% reduction in indirect spend can result in a 1-2% impact on the bottom line – a margin that would be significantly harder to achieve through increased sales and revenue(1).
2. Up to 25% of indirect spend costs can be avoided if the process is optimized(2)
There’s great opportunity to make considerable impact by managing indirect spend strategically. So, if indirect spend makes up a considerably smaller portion of your company’s outgoings than direct spend, this doesn’t mean it can’t make a sizeable difference.
3. It can be a lot easier to manage than trying to cut costs elsewhere
Compared with some of the other, more painful, considerations of where businesses could look to reduce costs – from staffing restructures to salary cuts - optimizing indirect spend just might be the effective, sustainable and pain free alternative that Finance teams need.
4. It can save you money with suppliers
With a little analysis to monitor and evaluate where the spend goes, Procurement teams can quickly make efficiencies by negotiating good contracts with suppliers and guiding people in the business to these contracts.
5. You might be duplicating spend
Without technology, and the decision-making and approval processes with it, employees aren’t guided to the best value agreements and suppliers, which can lead to multiple staff members making the same purchases.
So as pressures on Finance teams mount to find savings in these difficult times, it might just be time to start to adopt a proactive approach to indirect spend. Contact us today to find out how.
(1)(2) EY (2014) Indirect Procurement Optimisation - Unlocking areas of savings and value creation