Indirect Spend

Effective management and control of indirect expenditure

Indirect send includes all of the supplies that are necessary to run your organisation such as electricity, computers, furniture, capital expenditure, works and so on. The majority of indirect spend is common across all businesses but for some it can form a greater proportion of expenditure than direct spend.  Internal services like catering, facilities management, legal or IT are often outsourced which has made the indirect spend of many organisations even larger. The breadth of indirect spend can be enormous, from travel to staplers, this often leads to purchase ledgers with hundreds if not thousands of suppliers, dozens of which are serving the same category of requirement.

Your strategic sourcing analysis should have determined your organisation’s indirect requirement and its profile in terms of ABC or Pareto analysis. It should have enabled you to categorise the more significant areas of spend and aggregate less significant areas as appropriate. The next stage is to draw together cross-functional teams to determine the most appropriate sourcing plan for each significant category.

Creating your sourcing plan with the support of a cross-functional team

Individuals need to be identified who are best placed to take forward a sourcing plan; these are often a cross-functional team – whose objective is to set up the most appropriate contract that the market place has to offer. It is good practice for your team to agree a charter that summarises their roles and responsibilities and the method of working along with their objectives as a team. They should then move to the steps described under acquisition pre-contract.

It is the responsibility of your purchasing and supply management staff to determine the most appropriate policies, procedures and processes for acquiring these categories on a day to day basis. This may involve call off contracts, eprocurement, purchasing cards etc. as appropriate.

When sourcing options are determined, your plans might need to include backward integration to manage the process of a new supplier taking over a key requirement. Plans need to be developed for managing the relationship with each of your key suppliers; this might include partnering, joint ventures or strategic alliances; specific objectives might include value engineering and value analysis.

It is also the responsibility of the your purchasing and supply management function to ensure that indirect category contracts are managed, suppliers are developed as appropriate and that expected benefits are monitored. Indirect spend should, like direct requirements, be subject to continual improvement.