In Part I of this series, “Does Maverick Spend Undermine your Indirect Spend“, we discussed how being a maverick can sometimes be good in business, but ‘not’ when it comes to procurement. Maverick spending is a major challenge for finance professionals, with recent studies showing that, on average, one-third of all purchases in organizations are made without the knowledge of the procurement department.
In Part II we’ll discuss how Business Process Improvement strategies can help manage your Indirect Spend.
4 Key Strategies for ‘Corralling’ your Maverick 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:
- Focus on and influence key executives – Using the data that you do have on indirect spend, prioritize areas of the largest spends, grow expertise in those areas, and build relationships with the key executives in order to gain greater insight and be more deeply involved in their purchase processes.
- Choose Preferred Suppliers – Minimize “maverick spend” by negotiating contracts with key suppliers in each of the top expenditure areas. By pooling the smaller spends into a fund with fewer suppliers, you will gain increased leverage on pricing.
- Manage with Automation and Measurement – The volume of transactions and diversity of suppliers make indirect spend an ideal area to manage through collaboration tools. Look for a solution that provides approval routing functionality; providing you with accountability, auditability and compliance.
- Set KPIs – While measuring and scoring indirect suppliers may be more challenging due to the variety of supplies and types of vendors, buyers suggest that there are some general KPIs that can work across a variety of vendors: contract compliance, customer satisfaction, and cost competitiveness and continuous improvement.
While your company may have optimized every cent spent with direct suppliers, 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.
At ISS Group we recognized the need for such Business Process Improvement (BPI) solutions over two decades ago, and today, ISS Group continues to deliver to the QAD EA community Agile BPI solutions, such as e-Procurement, which digitize business processes that connect people and processes via the cloud, mobile devices, and social networks, for Mid-market and Divisions of Fortune 1000 Manufacturing and Distribution organizations.
Did you miss a few of our articles in 2015? Catch-up by clicking here to review our previous blog posts…!