How do companies deal with the problems posed by in-direct procurement spending?

Is maverick spending by non-procurement employees the biggest challenge relating to indirect procurement? 

Recently Supply Management conducted a market intelligence survey in which 71% of respondents said that a lack of oversight of what employees, with purchasing power but outside the procurement function, spend in categories ranging from work wear to HR services were among the top issues they faced. 

However opinions on how to deal with the issue are split. 34% percent suggest non-procurement professionals must be trained more effectively in procurement processes and a further 16% said supplier numbers should be consolidated. A further 31% percent from the private and public sectors said control of indirect spend should be handed to the procurement function, as this is one way to keep the spending in line to control the problem. This is despite the results showing that indirect costs appear to be a responsibility shared over a number of different departments within organisations: procurement (63 per cent), senior department heads (42 per cent), finance (39 per cent) and operational staff (25 per cent).

“We are a government procurement department so can only advise other departments on spend – rather than take ownership – which is frustrating,” one respondent said. “We can provide the best advice but the stakeholders can decide to overrule our advice and do what they want.”

Many of the other challenges in relation to indirect procurement are linked to maverick spend and stakeholder management. Nearly half (46 per cent) cite misclassified items and poor reporting as a challenge, 45 per cent say little understanding exists of where indirect spend lies and how much it covers. And 49 per cent say lack of ownership by stakeholders is a problem.

Again, respondents were split on the best way to increase the influence and profile of procurement in the organisation. Nearly half (47 per cent) of the 360 people surveyed said a higher status in the boardroom would help, 42 per cent said procurement needs better oversight and reporting metrics of departments’ spend and 36 per cent said more training should be available to stakeholders.

But respondents also admitted that their skills for managing indirect spend fall short in some areas. When it comes to improving their understanding of indirect spend, 54 per cent said they need to analyse supply chain and commercial commitments and 46 per cent said they need the ability to benchmark prices.

“It’s a complicated picture and one not easily overcome with basic strategy or sweeping statements,” said Chris Aston, director, Expense Reduction Analysts.

“The focus is constantly shifting between direct and indirect spend and not always in the same direction. There are huge gains to be made by allowing procurement strategies to be given higher status by businesses, and better analysis of indirect spend can have significant benefits.”

David Noble, group CEO, CIPS, added: “Boardrooms are starting to wake up to the need for professionally qualified supply chain managers because of the added value that best practice, ethical sourcing can add to their bottom line and the role they play in safeguarding their business’ reputation.”