There are unique challenges and opportunities presented by complex, frequently ordered categories of Indirect expenditure, such as marketing services, print, packaging, uniforms & apparel, office supplies and related products and services.
Many organisations continue to find their complex expense categories difficult to accurately understand and effectively control, even with dedicated experts in Indirect Sourcing, Corporate Procurement and Supply Chain Management and applying practices that have successfully brought other categories under management.
2Why is Complex Spend an Issue?
The reasons for the challenges vary from organisation to organisation however, fundamentally, include the spend being spread across many business groups (i.e. Decentralised), the products having unique/custom requirements, and/or sensitive time-lines and quality standards that cannot be compromised. Generally, these factors override the prudent activities regarding sourcing and exploring cost savings opportunities, and premium pricing is accepted at the job level without any focus on organisational leverage.
- Unpredictable demand
- Distributed locations
- Short purchasing cycles
- Complex specifications
- Pricing complexity
- Lack of Expertise
3Gaining Visibility and Control
How does an organisation gain visibility and control over a complex spend category?
The first step is to gain visibility of the spend before attempting to control it. To define a methodology of how to approach this effort is simpler than the associated work ahead however, probably, the most important success factor. There are four broad approaches that can be taken:
- There is industry research and benchmarking services available to provide a view on likely ballpark numbers.
- You could obtain a ‘rough cut’ estimate from department heads, accounts payable and key suppliers and partners.
- Bring in the experts. There are many third-party providers of expenditure audits ranging from specialist consulting firms, agencies, service providers and others.
- Implement simple online software tools for the organisation to use.
4Which is the Most Effective Option?
Implementing simple cloud-based software offers the best long-term solution and overall reduction in costs – including those associated with data analysis specialists. By making the tools widely available across the organisation and ensuring they are easy to use, it will be possible to gain some traction. Dependent on the organisation’s approach, from encouraging use to full mandates, it will also be possible to capture who is buying what, from whom and at what price. This is the first stage towards bringing this expenditure under management.
Real and powerful insight can only be extrapolated from data at scale. But still, the point is not simply to mechanically extract as much data as possible, but to apply it in the context of the business.
If you want one off results, then engaging a consultancy would be the best option. Though, do not assume this will produce the fastest or most effective results: in the time taken to manually analyse and report on data you could have implemented a long-term automation solution.
We would not propose that you use internal resources to provide detailed accurate information. As this would be the least accurate and most open to distortion of all the approaches. By all means solicit input from department heads to gauge the potential size and scope, however tying up internal resources on this would not, in our view, be cost effective overall.
We would also suggest a high-level skepticism over the use of technology terms by vendors in context of visibility and control. Although, AI and Block Chain will have their place in the Procurement world, it is important that you get the basics right first before exploring these more advanced technologies.
Feel free to contact us to discuss where AI and Block Chain will be most used and why.
Gaining Spend Visibility and Control of Complex Expenditure White Paper
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