Indirect Spend Optimization
Realize effective and sustainable savings in procurement of indirect requirements.
Leverage Potential in Procurement of Indirect Requirements
The procurement of indirect requirements is one of the largest areas of spend in many companies. Depending on the industry, it accounts for 20% to 30% of the total purchasing volume. Indirect spend includes all services, capital goods, and consumables required for ongoing business operations that do not flow directly into a company’s value creation process. This includes services and indirect materials for specialist departments, such as IT and telecommunications expenditure, logistics, facility management, or waste disposal.
Our experience from over 2,500 indirect spend optimization projects shows a high, often underestimated savings potential. With the goal of sustainably reducing costs in the company, indirect procurement is often neglected because the numerous expenditure items are not transparent and the procurement of these requirements is rarely structured. Yet an optimization of indirect procurement has a noticeable and often very short-term impact on annual results: cost savings of between 10% and 20% can be achieved through structured procurement of indirect requirements.
Focus topics in indirect spend
Digitalization and IT procurement
IT requirements are changing rapidly in the course of the digital transformation.
As a result, the spend and thereby the importance of IT procurement is increasing dramatically. The secure and fast provision of large amounts of data, innovative applications and new virtual services is not only a major challenge for IT management. The skillset of procurement must also constantly evolve. For this purpose, procurement should be integrated into the processes at an early stage. Optimizing IT procurement pays off in two ways: in reducing the costs of hardware and software, and in the efficient procurement of IT services. Thanks to our expertise, we can support you in this and, despite the market power of some manufacturers, achieve optimal conditions through individual service and price models.
Construction and facility management
Material scarcity, shortage of skilled labor, increased wages, and financing are just some of the issues that have hit the construction sector hard in recent years.
The speed of modernization initiatives has dropped, with repair and maintenance as the focus of many operations. Strength in procurement has never been more key to help counteract and control skyrocketing costs while, in parallel, ensuring we procure materials and plan projects with a lower environmental impact.
We help our clients navigate these challenges through:
- Negotiating commercials and terms while ensuring compliance with regulations, project specifications and sustainability objectives
- Identifying and selecting qualified contractors and vendors across fields and markets leveraging technology and automation in the procurement process
- Planning and optimizing the acquisition of materials, equipment, and services for projects
- Developing best-in-class budgeting and forecasting methods with accurate tracking across costs and timelines
- Managing supplier relationships and risks through the project lifecycle
Marketing procurement
The marketing spend landscape has changed drastically with the COVID-19 pandemic accelerating the shift in budget to digital channels such as social media and e-commerce, and away from less effective traditional advertising.
An increased emphasis on big data and targeted marketing combined with increased spend is on capturing market share as the economy recovers only intensifies the need for a more strategic marketing and procurement partnership and a more flexible and agile approach to sourcing.
With our extensive project experience, we help our clients:
- Negotiate contracts to optimize performance measures and enhance return on marketing investment (ROMI)
- Increase collaboration between marketing and procurement through a goal-oriented approach with clarity around value-add
- Take the leap to engage new suppliers focussed on digital and challenge the status-quo
- Elevate decision making with a data driven approach
Logistics and indirect services
Maximizing and improving operational excellence can be a vital component of competitive advantage.
Especially in today’s ever-changing market landscape, affected by supply chain disruptions, trade instability, and the rise of digital operations, managing operational costs across central indirect services such as logistics, energy, and indirect materials (e.g., MRO) to drive bottom-line growth must be a key priority.
Done right, optimization of such services will contribute to reduced cost while simultaneously driving innovation, quality and sustainability in parallel to reducing your risk position and facilitating resilient supply chains. Thanks to our extensive project experience, we understand the market requirements, use developed best practices, and have the most recent price benchmarks for all relevant commodity groups in indirect spend. To unlock the full potential, we partner with you to ensure transparency and establish state-of-the-art strategies to accelerate results while building customized capabilities to your unique needs.
Indirect procurement offers significant savings potential. With demand and tail-end spend management, it is possible to create the necessary transparency and monitoring across the company.
Jürgen Wetzstein, Managing Director, Inverto – a BCG Company
Our indirect spend experts
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