Originally Published on: SpendEdge | Biggest Challenges Faced by Procurement Professionals in Indirect Spend Management

In most cases, companies place little importance on indirect spending categories and prioritize direct spending categories. However, indirect spending can account for a significant portion of third-party spending in many organizations. Indirect spend management is garnering attention due to its capacity to derive greater value from their supplier expenditures and increase savings. Management of indirect expenditures is not so straightforward and simple. Managing IT, MRO, logistics, utilities, and travel requires procurement teams with a unique set of skills and knowledge. If procurement teams can effectively manage and take charge of indirect spending, they can generate more opportunities for cost savings. What obstacles must procurement professionals surmount to unlock new cost-cutting opportunities?

Maverick expenditures are transactions made outside of contractual agreements. Due to a variety of reasons and conditions, businesses make numerous purchases based on their contractual obligations. However, this can be detrimental to the organization, as no contract means no legal protection, and it can also have an effect on the organization's profit and contract fulfillment. In a large enterprise, unmanaged spending can account for billions of dollars of ineffective and inefficient purchases. Furthermore, it renders the organization susceptible to procurement fraud. The implementation of control measures to eradicate such rogue expenditures is a significant challenge for procurement specialists. Employees typically attempt to be productive by adopting a 'just get things done' mentality, which makes it difficult for organizations to control such expenditures. In addition, procurement professionals frequently avoid the contracting system because it is cumbersome and time-consuming. At a time when agility is essential, they cannot afford to squander time on unnecessary paperwork. In addition, employees may occasionally believe they can find a better bargain elsewhere than what the contract offers. It is crucial to assess HR policies and inform stakeholders of the negative effects of uncontrolled spending. A review of the P2P process and a thorough spend analysis are also required to halt such rogue spending.

Lack of central authority
A common misconception held by outsiders regarding the organization is that it is a singular entity. In reality, they operate with multiple departments that are under decentralized control. The issue with this type of decentralized control is that when instituting indirect spend management, professionals frequently lack an understanding of the scope of diversity within their organization. Each department has its own budget, as well as the measures and regulations necessary to spend the budget where it is needed. Again, this results in decentralized spending and purchases. Therefore, it is difficult to determine who is spending on what. Organizations should centralize their purchasing operations in order to effectively manage indirect expenses. It will not only aid in achieving economies of scale, but also permit a closer examination of suppliers and contracts. In addition, it eliminates the practice of awarding contracts based on the convenience of each department and ensures the selection of qualified vendors. Non-price factors such as risk management, CSR initiatives, and supplier diversity are impacted in addition to its contribution to cost reductions.

Automated procure-to-pay (P2P) procedures have been adopted by businesses to address the challenges posed by indirect spending management. These procedures eradicate process errors, enhance the visibility of payments, and provide greater control over indirect expenditures. In addition, the organization uses eProcurement, eInvoicing, Accounts Payable, order lifecycle management, electronic payments, and supplier management to increase visibility and control over its indirect spend management.

Challenges in indirect expenditure management, maverick spending, and unmanaged spending: