“Follow the money” is a timeless quote made famous in the movie All the President’s Men. But the point remains just as relevant in today’s business climate. Accounting departments today can tell us where the money is being spent, just not necessarily why. This is especially true when it comes to indirect spending which can range from 20-50% of all costs for companies. But how does that much spending go without proper oversight?
Indirect spend is mostly made up of spend categories that fall outside of core competencies for most organizations. Whether you are a restaurant, law firm, manufacturer or dentist the fact of the matter is you likely are very in tune with every detail from your supplier base through delivery to the customer that involves your core competency. You have organized the structure of the company to deal with all facets from sourcing, contract development, marketing, sales and customer service. Indirect spending by contrast has little accountability to any one person or organization in most cases. Costs such as insurance, fuel, utilities, office support equipment and supplies or maintenance. These have a way of flying under the radar.
If your goal is just to match last year’s indirect spend budget then you are not asking the right questions. Business services change, technology changes and your demands are constantly moving. Take the time to investigate existing contracts. The effort will more than pay for itself. Here are three ways to help you manage those costs:
- Start by following the money – Identify, track and create awareness as to how much and where those costs are being spent. Most people in the organization do not have an understanding of how many total dollars are being spent outside of the areas they directly touch. Awareness is the key to making change possible.
- Review contracts – Most companies get into contracts and do not update the level of service timely to account for the shifting demands of their business. Increasing or decreasing staff or new technologies often change your demands on the level of service required. Service `providers also are constantly updating their level of services, rates and not to mention competitors.
- Engage partners if you are short on resources– There are many options when attempting to negotiate with indirect services. No one has to go it alone. Just like you have a core business, there are companies whose core business is to simply negotiate these services for you and they will often times more than pay for their services through their work. They have the experience, capacity and strategic partnerships already in place to quickly deliver turn-key solutions that fit your needs.
Indirect spend is a very significant factor in cash flow that is seldom properly addressed. Therefore I think the challenge to procurement should not be to just follow the money. It is time for procurement to take this challenge to the next level. Cuba Gooding said it best in Jerry Maguire, “Show me the money” procurement! That is the question procurement should be answering when it comes to indirect spend strategy.
If you know of any companies that may need help in “showing me the money” please email firstname.lastname@example.org. We would be glad to assist you in finding solutions that will “show you the money” in your indirect budgets.
Question: what other famous movie lines apply to your business challenges today?