A.T. Kearney recently released the results of their Indirect Procurement Study (IPS) that analyzed indirect procurement across 94 multinational companies with a combined indirect spend of $134 Billion which suggests that indirect procurement categories like IT, marketing and advertising, facilities management, MRO, Logistics and professional services have become increasingly important to Chief Procurement Officers. This is good news considering the huge savings opportunity it represents as indirect spending accounts for 60% of third-party spend in non-manufacturing companies, more than 90% in the financial services industry, and sometimes 50% of spend in manufacturing organizations.
Like any other A.T. Kearney or Big Consulting study, it’s jam-packed with lots of results, statistics, findings, and conclusions, but there’s one finding in particular, which was picked up by this recent article in logistics management, that really gets the message across:
The most successful indirect procurement organizational model was a central-led organization with collaboration across business units. Users of this model achieved savings greater than 10% over the last two years in 47% of categories.
In other words, if you’re best in class, you can expect to save at least 10% on at least 25% of your spend, or 2.5% of your total spend. (Worst case, you’re manufacturing with only 50% indirect spend. You save 10% on half of those categories, which is 25% of all of your categories.) If you’re spending at least 100M annually, that’s at least 2.5M, and that’s nothing to scoff at! And if you’re using a real data analysis tool, it won’t take you long to find it either!
For some great tips on where to look for indirect savings, if you haven’t already, download the recent Sourcing Innovation Illumination on Strategic Spend Visibility. It’s definitely worth the read.