INDIRECT SPEND_BLOG.jpgSourcing and procurement professionals are in the spotlight as their organizations seek to improve operational efficiencies and cost-cutting measures. Simple procurement may involve nothing more than repeat purchasing of goods and services whereas complex procurement could involve deeper analysis of spending and finding long term partnerships with appropriate suppliers. No matter what your process it is important to analyze what you are spending in more areas than you think. Have you looked at your Indirect Spending?

Why analyze your Indirect Spend?

So what is a procurement manager to do to manage procurement costs? Analyzing your indirect spend is a start if you have not already done so. Indirect Spend is comprised of all of the expenses associated with running your business which are not associated with the cost of goods sold. These are the expenses not directly related to what is sold to your customer. Examples may include but certainly not limited to your store equipment, building construction, doors, lighting, recycling of your cardboard & plastic, marketing & advertising, IT related services, office supplies...and even HR Benefits to name a few.

If you combine all your indirect spend across all business units, this spend can be significant and a huge cost to procurement managers. Industry numbers say that, for most retailers, indirect spend represents the third largest spend category after cost of sales and store wages typically 8 to 10 percent of sales revenue. That’s a big chunk of change!  

Find innovative ways to cut indirect spending

Indirect spend is one of the more complex and overlooked areas of spending. In many companies, indirect spend is 1) decentralized; 2) often overlooked; 3) include supply chain costs; and 4) deemed to be not as important to the company’s profitability. This reality makes managing and analyzing indirect spend difficult so retailers are finding innovative ways to cut costs in this area.

Some retailers have their own internal sourcing organizations, some work with their incumbent suppliers while other companies are using external sourcing companies to assist with the complexity of managing indirect spend. Good external sourcing companies have industry expertise and partnerships with high quality suppliers, and can typically negotiate better pricing depending on their sourcing approach.

At Topco Indirect, we supplement your procurement process and not take it over. We can provide innovative approaches to purchasing, share knowledge about the industry, explain raw material pricing fluctuations, give insight on sustainability solutions, and assure you meet industry regulations in a proper and timely fashion. These are all helpful to your procurement strategy and driving cost down in indirect spend areas. In fact, we have helped our customers save an average of 10.6% since 2011 which represents $475M in cumulative savings! 

It’s worth the time and effort to analyze your indirect spending on both a short and long term basis. To assist you, try an alternative approach and let the sourcing experts at Topco Indirect help you with this analysis. We have a dedicated team of experienced sourcing professionals representing ten areas of indirect spending including construction, store equipment, financial services, HR Benefits, logistics & distribution, marketing, merchandising, office suppliers, packaging, store operations and waste. Contact us today.

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Cutting indirect spend costs, power of third party sourcing

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