‘Indirect spend’ is expenditure not immediately related to production, as opposed to ‘direct spend’ which covers materials directly involved in product development. Indirect spend encompasses everything from the purchase of stationery to the hiring of temporary administrative staff.
Until relatively recently, procurement spend management has focused on direct spend, with indirect spend largely remaining under the radar.
But with growth in the services sectors across developed economies, indirect spend as a percentage of overall procurement budgets has steadily increased. In some sectors, indirect spend now accounts for the majority of procurement outlay.
Inefficiencies and cost overruns in indirect spend are a major issue for many firms, and central to this issue is non-compliant spending, or ‘maverick spending’ – when employees circumvent established company policies and procedures in the procurement of goods and services.
While the purchasing of stationery, for example, on an ad-hoc basis may seem relatively inconsequential, taken together maverick spending on sundry items can end up adding a significant premium to a firm’s annual procurement outgoings.
Non-compliant purchasing generally equates to a higher cost base for firms, with knock-on implications for market competitiveness. Greater compliance correlates with cost efficiency throughout the supply chain.
Read more about spend management and how e-sourcing can help by downloading our white paper, Effectively Managing Procurement Spend.