An academic and former procurement professional has identified a series of critical steps to effective indirect spend management, including tail spend management — a huge area that in many companies often exceeds direct spend.
Writing in Supply Chain Dive, Rich Weissman recommends the following:
- Bring all company spend, direct and indirect, under procurement’s control
It requires active supplier relationship management in all procurement categories to ensure the prohibition of procurement activities by agencies that aren’t formal agents of the organisation.
Supply management tools such as strategic sourcing, comprehensive contract management, and supplier performance monitoring should be used for all procurement activities.
- Use sound spend analytics
It is vital to identify critical path suppliers and to build up an indirect supplier list so that purchases can be accurately codified to facilitate a clear overview of spending patterns which, in turn, need regular analysis and key suppliers to be regularly reviewed.
- Monitor all indirect spend contracts
It’s the nature of indirect spend to be fragmented.
All such contracts must be identified and ‘owned,’ including identifying any inappropriate terms tucked inside them, such as ‘evergreen clauses’ that result in the automatic renewal of contracts year-on-year.
- Boost indirect spend’s importance
Given the scale of indirect spend, it is being increasingly given its own senior managers, often at the executive level.
But appropriate staffing and leadership will be crucial to its success.
- Develop clear criteria for indirect supplier performance
Work with key indirect suppliers to discover how they monitor their performance and then build that into a realistic performance tracking model.
Performance management should be part of the contract.
- Bring in subject matter experts (SMEs)
People with functional responsibility often think that they are the best judge of supplier selection and management. But, by drafting them in as SMEs on the negotiating team, you harness their expertise and lift the weight of selection and contract management from them.