A CFO’s task list is full of pressing initiatives: implementing AI across departments, meeting new sustainability targets, managing rising costs, dealing with uncertainties due to tariffs, and protecting against cyber threats. With all this going on, indirect procurement rarely gets the attention it deserves. But here's the reality: your business probably losing millions through inefficient indirect spending.
While the team meticulously tracks every cent spent on raw materials and direct supplies, what about the rest? Office technology. Facility services. Professional consultants. Marketing agencies. The hundreds of SaaS subscriptions scattered across departments. These indirect expenses slip through standard financial controls, yet they hold massive potential for both cost reduction and operational excellence.
Even strategic financial leaders who prioritize spend management often struggle to grasp the full scope of indirect procurement. Several critical factors contribute to this costly blind spot:
● Lack of visibility and tracking: Department-level management of indirect purchases creates silos. Marketing signs contracts with agencies. IT procures software licenses. Facilities handle their own vendors. Without centralized visibility, tracking true spending becomes nearly impossible.
● Inadequate resources for data analysis: Procurement teams often work with incomplete information. Without proper tracking and analysis tools, organizations can't effectively monitor their indirect spending or identify opportunities for optimization. Teams end up making decisions based on hunches rather than hard data.
● Ad-hoc purchasing processes: When employees across departments buy what they need without a standard process, spending scatters across the organization. Each individual purchase might seem reasonable, but without proper controls or oversight, the total cost grows unchecked.
● Variety of goods and services: Indirect procurement can span hundreds of very diverse categories, which can make it challenging to manage, especially without specialized expertise. Organizations typically do not assign sufficient resources to manage indirect procurement as it can become too expensive to hire the multiple experts needed for each category.
● Complexity of the process: Unlike direct procurement, the indirect process often involves dealing with multiple suppliers and complex service-level agreements and needs an efficient purchase-to-pay process.
What a lack of focus on indirect procurement is costing you
Poor management of indirect procurement creates cascading effects throughout your organization:
● Increased costs: A lack of strategic management in indirect procurement can lead to higher costs, through:
○ Duplicate or unused software licenses
○ Missed volume discounts
○ Inconsistent pricing across departments
○ Unused subscriptions and services
● Security vulnerabilities: Unmanaged technology purchases create security vulnerabilities. One rogue cloud storage subscription with improper settings can expose a company's sensitive data.
● Operational inefficiencies: Inefficiencies can arise from the ad-hoc nature of purchases, such as duplicated orders and inconsistent supplier evaluation.
● Inconsistent payment terms: Decentralized supply chain management can result in inconsistent payment terms, resulting either paying suppliers earlier than what is industry standard, negatively affecting working capital, or missing out on the opportunity to negotiate early pay discounts
● Missed innovation opportunities: Modern suppliers can be valuable innovation partners but only if you manage these relationships strategically. Without proper supplier relationship management, you miss insights that could give you a competitive edge.
● Reduced bargaining power: When purchases are fragmented across departments, you lose volume discounts. Oftentimes, different departments pay different prices for the same services from the same vendors.
● Waste of resources: Some highly skilled professionals waste hours on procurement tasks instead of core responsibilities. Marketing teams often spend up to 20% of their time managing vendor relationships rather than driving campaigns.
Breaking free from the cycle
Few companies have the resources to build a complete indirect procurement operation from scratch. The investment goes beyond just hiring — it requires new systems, processes, and expertise across dozens of spending categories.
Most successful transformations focus on gradual, practical improvements:
● Start with clear visibility into spending across departments
● Add proper tracking and analytics capabilities
● Build expertise in key spending categories
● Put standard purchasing guidelines in place
● Develop deeper relationships with strategic suppliers
● Bring in technology that makes sense for scale
While some organizations handle this internally, others speed up the process by bringing in procurement specialists. External partners can often implement proven solutions quickly while helping build internal capabilities.
Ready to tackle indirect procurement? Begin with these key questions:
1. Where exactly is money being spent?
2. Which departments are making similar purchases?
3. What controls currently exist?
4. What expertise gaps need filling?
5. How do your costs compare to similar organizations?
Smart indirect procurement is about more than just tracking purchases. It means having the right expertise to negotiate contracts, the right systems to monitor spending, and the right processes to make good purchasing decisions routine. Organizations that get this right find themselves spending less while getting more value from their vendors.
