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Optimizing Indirect Spend Management

Stephanie Dula   Mar 14, 2017      

Organizations spend billions of dollars on indirect goods and services each year, which includes everything from basic office supplies and utilities to marketing services and airfare and everything in between. Indirect spend (spend on non-inventory goods or any good that doesn’t go into an organization’s final product) is often seen as less significant than direct spend in terms of overall business strategy, and more like a necessary evil that organizations must contend with in order to function on a day-to-day basis. Direct expenditures are typically much more regulated than indirect expenditures, with much more control over cost and visibility into supplier data. Indirect expenditures can account for more transaction volume, however, in relatively small prices and quantities, which makes manual management of indirect spend especially costly across an organization. Manual processes rely heavily upon email and phone-based requisitioning and order management, as well as paper-based invoicing and payment processing.

Organizations that utilize automation tools within their procure-to-pay processes are much more effective at controlling indirect spend. These tools include eProcurement, eInvoicing, supplier management, and ePayments solutions. According to our 2017 Procure-to-Pay for Indirect Spend report, most organizations rely on a centralized purchasing department that purchases goods for the entire organization. This is good news, as it’s typically the best-case scenario for effective procurement processing, lowering the chance of many process issues that can arise from disjointed ordering. However, the same report also found that among organizations that don’t utilize an eProcurement solution, the majority are not using effective tools for ordering goods and communicating with suppliers, choosing to send purchase orders to suppliers via email.

Manual procurement issues figure heavily in organizations’ top goals for improvement. When asked where they would like to see improvement, survey respondents identified cost control and supplier negotiations, spend visibility, and processing pains as top areas of opportunity. The research also showed that organizations that have adopted procure-to-pay solutions have achieved the exact goals that those without the software aim for. These include improved control and security, better transparency, and reduced time-to-fill cycle times, see Figure 1.

P2P_Indirect_Spend_Figure_4

Despite the clear benefits of implementing automated solutions within the procure-to-pay lifecycle, many organizations remain hesitant. They cite obstacles including budget concerns, stakeholder resistance, and business process engineering challenges. A simple lack of market knowledge often contributes to all of these concerns. PayStream suggests organizations take the time to research the market and its offerings, as well as the effects of automation. Beyond accessing research material like the 2017 Procure-to-Pay for Indirect Spend report, organizations should talk to their peers about their own process struggles and automation initiatives, and contact P2P software vendors for a demonstration.

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