Indirect Spend: An OverVue™

Indirect spend plays a vital role in an organization's success but is often considered too hard to gather and analyze. Due to how indirect items are handled in an organization, this spend often goes overlooked when strategically managing expenses. Indirect spend categories include office supplies, travel expenses, marketing materials, and professional services.

Some companies also include freight and packaging in their indirect spend as these costs are not considered to be linked to the production of finished goods. Clarity about which costs are classed as direct and indirect is essential if you want to manage the area effectively.

While these indirect expenses may seem small, they can quickly add up and significantly impact an organization's bottom line. Organizing and cleansing these indirect spend categories is essential for making better decisions that can improve your organization's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

The first step in cleaning up indirect spend categories is to collect accurate data. This data should include all indirect spend categories, purchase dates, vendor information, and the amounts spent. This information can be gathered from invoices, expense reports, and procurement systems. With this data, organizations can identify areas where they are overspending and look for opportunities to negotiate better deals with suppliers.

Once the data has been collected, it is crucial to categorize and analyze it. This will allow organizations to identify trends, such as which categories are the most significant contributors to indirect spend, which suppliers are being used the most, and which months are the busiest for indirect spending. With this information, organizations can make informed decisions about where to focus their efforts to reduce costs.

One of the benefits of cleaning up indirect spend categories is that it can help organizations to negotiate better deals with suppliers. For example, if an organization has identified that it spends a significant amount on office supplies from a particular vendor, it may be able to negotiate a volume discount. This can lead to substantial cost savings and help to improve the organization's EBITDA.

Another benefit of cleaning up indirect spend categories is that it can help organizations identify cost optimization opportunities. For example, suppose an organization discovers that it spends significantly on travel expenses. In that case, it could reduce costs by using alternative travel options, such as videoconferencing or negotiating better deals with travel providers.

Cleaning up indirect spend categories can also help organizations to improve their procurement processes. By collecting accurate data and analyzing it, organizations can identify areas where they can streamline procurement processes and reduce the amount of time and resources spent on procurement activities. This can result in significant cost savings opportunities and process improvements and will lead to improved EBITDA.

In conclusion, cleaning up indirect spend categories is crucial for organizations that want to make better decisions and improve their EBITDA. By collecting accurate data, categorizing and analyzing it, organizations can identify opportunities for cost optimization, negotiate better deals with suppliers, and streamline procurement processes. These efforts will result in substantial cost savings and help organizations to achieve their financial goals.

At ProcureVue, we can use our approach to provide quick and accurate categorizations of your data, aggregate that data into one source of truth, and provide instant insights for you to leverage within your organization to make the best decisions. Reach out to schedule 15 minutes with our experts to see if you qualify for a free demo with your data.