HOW TO REDUCE INDIRECT SPEND
Reports last year from a large sample size of Procurement companies showed that 74% of participants highlighted cost reduction as their top objective for 2018. Another interesting statistic was that 70% of Procurement Executives said they would be prioritizing ‘indirect spend’ as their main focus for reducing and controlling expenditure. The same survey evidence that indirect spending can account for up to a staggering 50% of a company’s entire spending. Manufacturers in particular can spend in excess of 20% of their total revenue on indirect expenditures. This makes it an obvious focus for companies to target and become more efficient.
So, what is the difference between direct spend and indirect spending, and what needs to be done to reduce costs in this area?
Direct spending refers to purchases of goods and services that are directly incorporated into a product being manufactured. Examples include raw materials, subcontracted manufacturing services, components, goods, and services associated with the bill of materials (BOM).
Indirect spending refers to purchases of goods and services that are not directly incorporated into a product being manufactured or the BOM. Examples include computers, protective equipment, stationery, equipment hire, janitorial services, equipment and furniture.
Indirect spending is often overlooked as it is not considered part of the final product, but looking at the statistics above it is something that clearly needs addressing in order to become fully efficient.
RobobAI believes the answer to this lies in having reliable, reoccurring accurate data and an intelligent platform that not only classifies your data but tells you where the opportunities are so your strategic sourcing teams spend more time on outcomes and less time on analytics. Data shows that there is a 9% variation across the market prices for accessories like stationery, H&S equipment, and many reusable consumable products where companies are simply overspending and wasting money. So why would you consistently use the same supplier without putting some resources into analyzing the entire marketplace? It makes perfect sense to invest in procurement analytics like RobobAI, which in the long run can make an impact on what could potentially account for 50% of your company’s overall expenditure.
To find out how RobobAI will give you intelligent insights and recommendations on how to optimize your indirect spend contact us and get the demo or call Steve Ward for more information at +61 404 700 326.
