Managing indirect spend is not only pivotal for every organization’s financial standing, but to also have the transparency in the company’s cash outflow.
In assessing strategies, there needs to be a clarity between indirect and direct spend as managing between the two requires different set of tools and plan of action.
Indirect spend generally includes day-to-day needs for operating a business. These include areas of facility management (pantry items, toiletries), utilities, technology and areas of marketing spend (ad works, PR and agencies).
Although every company runs on different sectors of business, it is paramount for companies to revise their strategies for indirect spend management strategy and to have a sustainable approach to remain competitive and keep their business running smoothly.
With the rapid change businesses have to endure especially during unprecedented times such as crisis such as the COVID-19 outbreak, companies are actively seeking new ways of lowering costs and improving profits.
However, more often than not, a lot of companies face the issue of having cost-reduction programs that fail to meet expectations due to poor planning, management, and execution.
Fortunately, there are a number of proactive solutions that can facilitate improvement in indirect spend management.
The age for digital transformation
The solutions to this issue that businesses need to address will be under the umbrella of digitalisation. The fact that companies globally have different natures of business is true, but one common thing that we all share during this unprecedented time is the need for digital transformation.
Begin with automation
An important part of digitalisation is leveraging on automation. Automation will enable businesses to have a more streamlined procurement process and an efficient workflow.
For instance, how does your approval flow look like currently when one of your employees wants to make a purchase for pantry items, or perhaps a bigger purchase such as 20 units of laptops to replace broken ones that would most probably cost your company a good few thousands?
How long does the approval process usually take and how many people does that employee have to go through to purchase the items they need? With an automated approval flow, this will simplify the process and shorten the time taken.
On ADAM, admins can take advantage of the approval flow feature by easily setting up the company’s approval flow according to the range of amount being purchased and assign users to specific flows or based on departments and branch locations. Approvers will also be notified when a purchase is being made and an approval needs to be made.
Not only does this take away the conventional way of getting approvals, automated approval flows give approvers the chance to scrutinize whether the purchase is within the company’s budget. With that, there will be a better analysis of cost-saving alternatives.
Hence, improving indirect spend in an area that can often be overlooked.
Maximise savings through spend visibility
Spend visibility promotes an opportunity for businesses to increase savings on indirect spend. With the availability of analytics and procurement reports, businesses are able to gain valuable insights in improving supplier relationships and increasing profits.
ADAM’s analytics feature enables both admins and users to gain multiple insights through various reports such as overview reports, spending reports and consumption reports.
However, the key take away from this is not how much the company is spending, rather what the company is spending on. This then allows for a shift in spending accordingly into areas that are more profitable and will give you a better return on investment.
Having real-time visibility also allows for tracking history of purchases. There will be a higher level of transparency over who made these purchases. This then enables for an evaluation on whether the purchases made were an expense to the company or a gain.
With this information, companies can determine how informed employees are in the area of indirect spend. Finding out if they are aware of the allocated budget will allow for prevention of overspending.
Having said that, taking the time to educate employees on indirect spend by leveraging on the accessibility of data through analytics has its value. After all, your employees play a big role in supporting your company’s financial health.
Here are some tips on how employees can be kept informed:
- Keep employees in the loop
Not only does this help educate employees on strategies, it will also help build trust within the organisation by sharing important information that is useful to them.
- Share results
Sharing just the plans is not enough – let employees be part of the whole journey and let them know which strategies worked and which didn’t and what could have gone better.
- Allow for open communication and feedback
When employees are kept in the loop and results are being shared, ideas will be formed. This way, more ideas and suggestions for improvement will be shared – this also allows for the development of an innovative and forward-thinking culture.
With transparency and open communication, it will lead to a development of a higher level of trust and improve employee engagement. Employees would also feel valued and thus leading to creating a greater sense of responsibility once they understand the importance of indirect spend management.
When there is a clear understanding of the company’s indirect spend, it will help employees be more mindful and make informed purchase decisions.
Implement Supplier and Management Expense Policies
Companies would often have a range list of suppliers that they engage with regularly for procuring. Therefore, taking advantage of this available database of who the company’s suppliers are can assist in scrutinizing appropriate policies that can be implemented.
Take the first step of analysing where large amounts of expenditure are being made. Then, determine how big of an impact it has on the company’s budget. When there is clarity on expenditures, negotiation of contracts with top suppliers can be made.
With proper negotiations and revising of contracts, not only do companies obtain the value of consolidating purchase orders – this will also lead to having a higher level of control over agreements and managing expenses.
Policies can include elements of terms, conditions and price points for specific products and services. This is particularly beneficial for purchasing items in bulk and regularly purchased products.
When the right supplier and management expense policies are in place, monitoring and developing clear expectations of suppliers will be more effective. Additionally, administering penalties for non-compliance and incentives for exceptional services will assist in managing these expectations.
This also enables companies to build stronger relationships with suppliers and provide value for them. Having value-based relationships with external providers is key as it has major impact on a business’ processes, strategic goals and bottom line.
These are approaches that can strategically improve an organization’s indirect spend management strategy and help aim for continuous improvement.
It is important to begin by asking the right questions of the company’s current indirect spend situation to know how, why, when and where cost-cutting can be made. Establish the right direction to ensure the feasibility of plans and increase the rate of success.
We can look at digital transformation as the catalyst for growth during this disruptive time and to take sustainable steps forward for business’ financial health.
Achieve greater control on your indirect spend through digital transformation.
Ready to digitise? Let ADAM simplify the process for you.