According to our spend control business partner PROACTIS, indirect spend refers to, ‘…everything your organisation purchases to support operating the business, not including raw materials or products purchased in high volume for manufacturing or resale’. After payroll, indirect spend is the biggest source of cost in almost all organisations. Inefficiencies and cost overruns in indirect spend are problematic for many organisations and ‘maverick spending’, when employees violate company policies and procedures in the procurement of goods and services, must be avoided in order to keep a handle on indirect spend.
In order to prevent maverick spend, organisations need to gain control over how their staff purchase indirect goods and services, as this can provide an insight into how goods and services can be purchased more efficiently and cost effectively. Organisations should look to have a process in place where by the employee makes a purchase request, which is then authorised or denied by a manager and then a PO is raised if the purchase is authorised. The primary goal of this process is to ensure only necessary and appropriate purchases are made; that they are made with clear managerial visibility of the impact on budget; and that they are made with preferred suppliers (i.e. suppliers with negotiated purchase agreements) whenever possible.
An effective purchase authorisation process ensures compliance with established corporate approval policies to avoid unnecessary or inappropriate purchases. The PROACTIS Purchasing solution, part of the Purchase-to-Pay solution suite, enables purchasing authorisation to be performed online, making the process faster and more transparent for employees, providing managers with greater budget control and increasing ‘cost pipeline’ visibility for financial management.
PROACTIS solutions routinely help organisations save at least 15% on indirect spend. To find out more, contact us on +44 (0)203 866 8800, visit our Spend Control solutions page, or check out our, ‘How to Prevent Unauthorised Purchases’ blog post: