The Role of Indirect Spend Management in Business Efficiency

Posted on 30th March 2023

Indirect spend management is the act of optimizing costs for materials and services business’s need, in order to operate efficiently. It’s such an important role within a company in many ways.

You could be focusing too much on certain areas of your business, so you’ll need to control company spending – a way to do so is by implementing the best spend management process.

This can involve knowing where you can improve cost efficiency, how to choose the best virtual corporate card for your business, and how to automate workflows, for example.

With more reasons to explore, take a further look into the role of indirect spend management. See ways in which you can improve your use of it and why it’s an important fundamental for the productivity of a business.

Why is the role of indirect spend management so important?

There are many ways in which its role holds great importance. If you are investing in business supplies, you may lose control of what you’re spending, creating tail spend.

On the other hand, if you don’t properly invest in the right supplies for your business, it might not be able to run as well as it could. Not only this, but it may limit the efficiency of retaining your employee’s productivity.

Improving your indirect spend management

If your business is already carrying out this type of spend management, here are some ways of making sure that you’re doing so as efficiently as possible:

Spend analysis – Before spending on anything, you must know what you’re buying. To do this, a detailed spend analysis must be carried out, to identify key suppliers and target any saving opportunities.

Automation – This is the process of using technology to complete manual and repetitive tasks, so employees can work on other things to positively influence the business. For indirect spend management, it’s great for procurement, which is just the obtaining of goods and services. By automating procurement, it allows for wider accessibility to indirect spend management. Any ordering requests can be automated by using typical demands within your company, which creates less time needed to monitor them manually, while also reducing the chances of excess purchases.

Invest in education – To even carry out indirect spend management, everyone in your business must have an understanding of it, even if it’s not useful within their role. With procurement, a lot of indirect spending is done by non-procurement professionals. If procurement policies are not discussed properly, conformity will be low, leading to higher spending rates. By investing in valuable training and education services for all members of a company, it ensures that your team are following the same procedures, as well as supporting those who carry out procurement to achieve savings.

Set out formal standards – Education alone will not work efficiently, unless it is paired with the creation of formal standards and processes, to optimize how this spending works. You can only continue to improve your business if everyone has a clear idea of how your business practices are affecting costs and profits.

Streamline indirect spend categories – Tidying up your company and its support chain, makes it easier to manage. Combining these things into a more coherent plan can help to secure cost savings and strengthen supplier relationships. It’s so much easier to focus on obtaining better contract terms, pricing and leveraging economies of scale when employees can focus on managing a streamlined category set.

These are just some of the ways in which indirect spend management is extremely vital for the growth of a company, and how to properly utilise it within a business. By neglecting this, it could cause great challenges for your company, preventing it from running as efficiently as possible.