How you can reevaluate your indirect procurement strategy.
An ineffective supply chain strategy can have a significant financial impact on an organization.
When examining spend and ways to manage costs, most finance leaders turn to direct procurement. However, many companies are now taking a deeper look at their indirect procurement.
According to Supply Chain Digital, many indirect procurement groups now have complete spend data. Access to this data allows executives to recognize data-informed ways to save money.
As indirect procurement gains more notice, cross functional teams — including finance and procurement —are increasingly working together to review and enforce T&E policies, manage outside services spending and vendor relationships, and drive other key initiatives to control expenses. An article from Harvard Business Review said that building these relationships can lead to increased competitive standing, improved margins and increased procurement speed.
But, if you’ve never analyzed your indirect procurement strategy, knowing which direction to go can be a challenge.
The first steps to examining indirect procurement are unique to each company, but typically fall within three categories:
For some companies, tweaking and enforcing existing policies and procedures can lead to better bottom line. These solutions are relatively quick and could take as little as 30 – 60 days to implement.
Sometimes internal barriers need to be removed by understanding spend categories, managing the vendor master, building strong relationships with the functional stakeholders to gain access to spend that may have previously been “off limits” or disparate, and setting up the KPIs, which may differ based on industry and category. We must realize that for indirect procurement to have the most impact on the bottom line, it truly takes a cross-functional effort.
In order to improve supply chain cost efficiency, some companies require more creative solutions. We must focus not on the details but on the big picture. This could include, but is not limited to, process reengineering and automation, vendor consolidation and contract renegotiations, and ongoing monitoring.
As the market continues to shift, so must our thinking when looking at opportunities to improve our businesses. Analyzing indirect spend, managing vendor master and reviewing procure to pay process are just some of the opportunities available to effectively manage cost and give our businesses leverage to improve vendor relationships.
Connect with Robert
Having worked in both Finance and Procurement for Fortune 500 companies, Robert L. Morrison has led initiatives and implemented strategies to address indirect procurement spend. He now works as Senior Manager, Solutions Consulting for Salo and teaches Management Information Systems and supply chain courses at Metropolitan State University. Connect with Robert.