Poor Indirect Spend Management Can Lead to Missed Opportunities
Managing spend isn’t just about keeping the lights on. It’s about gaining the visibility to navigate around obstacles, identify new opportunities, and make informed, proactive decisions. Most importantly, it’s about gaining a competitive edge. Without a truly strategic approach to your indirect spend profile, you’re doomed to miss out on value and ultimately fall behind.
CFOs have always held a dual responsibility. They’re responsible for accurately assessing their cash flow and controlling it effectively. In a time when companies are forced to do more with less, however, these responsibilities have become more important and more challenging than ever. Executives need to have constant visibility into every aspect of their company’s current and forecasted spend. When it comes to things like capital expenditures, direct spend, and payroll, strict oversight typically makes it simple enough to collect accurate data. Unfortunately, the same is rarely true for indirect spend.
The true cost of running your day-to-day business is higher than you think
CFOs, especially those who oversees a business with disparate, decentralized locations, can usually provide details about how much they spend producing their core products. Ask them about MRO, office supplies, or professional services and you won’t get the same assured response. While these costs often account for as much as 40 percent of total spend, they’re often mysterious. Even a savvy CFO might underestimate them.
Taking a hands-off approach to indirect spend does more than give you a false impression of working capital and cash flow. Without cohesive, organized, and structured practices for approaching these costs, you can miss out on opportunities to reallocate resources, renegotiate key contracts, and realize savings.
How can companies bring indirect spend under control and seize every opportunity? By standardizing Procurement’s approach, consolidating spend to best fit suppliers, and, most importantly, implementing digital spend management tools to supplement their efforts.
Turn to technology and indirect spend management tools for multiple benefits
Indirect spend management solutions provide the visibility into AP and AR transaction details and line item purchasing histories necessary to track and enforce supplier compliance. Accurate and easily accessible data also enables companies to use predictive analytics for forecasting future spend and working capital.
This extra visibility can also serve as extra leverage throughout the negotiations process. With every single piece of relevant information at-hand, you’ll do a better job of securing the right prices and service levels. What’s more, you’ll gain these insights without the manual work that effective supplier management tends to entail.
Armed with real-time visibility into all transactions to the line-item level provides the ability to manage it properly. That knowledge, along with the analytical capabilities the solution should offer, will enable better decision-making from all stakeholders.
Don’t get caught without cash flow flexibility
The consequences of poor indirect spend management are numerous: overspending; off-contract purchasing; non-compliance; and unsatisfactory service levels. That’s just the surface. Having poor visibility into your indirect spend means you have no real understanding of your procurement team’s approach, your cash flow, or the status of your working capital. In a worst case scenario, this can losing access to your organization’s cash when you need it the most.
Disruption and unpredictability have become a fact of life. To thrive, or even survive, companies in general and procurement specifically needs to stay agile and flexible. They need to become proactive rather than reactive, they need to innovate rather than follow. This is all much, much easier with the visibility today’s spend management tools provide. In a sense, visibility provides the foundation of an effective business.
See how Corcentric’s Indirect Spend program can provide the visibility necessary to identify cost reduction opportunities and take more control over your indirect spend.