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15 maj 2019

Indirect spend mana­gement reduced costs by 9 %

Thoughts

Indirect spend management can be a powerful tool to increase bottom line profitability. One of our clients reduced indirect spend with 9% in only 8 months. Here is what we found and how we reached the result. Do you want more? Download the full article and analysis as PDF.

Client Case: Retail chain with 150+ stores

The case: No ownership of indirect spend

During a recent project, a leading retail chain worked together with Capacent to increase control of indirect spend and reduce associated costs. Total indirect spend amounted to SEK 230 million, a substantial share of the total spend. Instead of having an overarching responsible manager, indirect spend ownership was spread across several busy functional managers, without strong incentives to keep costs down.

A spend and cost assessment revealed several procurement related issues:

  • multiple contracts for the same services
  • non-existing, old, or outdated contracts
  • low levels of competition in tendering processes.

Furthermore, some previous attempts to consolidate the supplier base had failed, as the decentralized organization struggled to gather the full volume in central purchasing initiatives.

BI-tool and prioritized areas

The Capacent project team developed a visual spend BI-tool and created a categorization model for indirect spend. The categorization and visualization of the spend, together with qualitative input from key personnel, resulted in more than 30 business case hypotheses. Substantial improvement areas included IT, financial services, electricity, telecommunications, transport, facility management, and marketing material. During the project, reference prices and benchmarks were collected, and potential savings validated.

The project team from Capacent and the Client highlighted 10 prioritized areas with guaranteed improvement potential, covering some 50 percent of total indirect spend.

The result: 9% percent saved in 8 months

Based on the 10-prioritized-areas-list, the team realized annual savings amounting to SEK 11 million, 9 percent of addressed spend, within 8 months from implementation launch. Some savings became visible already during the first month. An additional SEK 5 million in savings were realized in the subsequent roll-out plan.

Capacent indirect sourcing

Capacent has worked with numerous customers in various industries supporting with spend management for indirect spend, category road maps, and realization of savings potentials. An indirect spend project typically generates savings of 6–15 percent of total addressed spend. Moreover, the organization is given the tools and competences to keep up the efforts against non-value-adding purchasing.

The relatively low level of complexity in indirect purchases usually implies a shorter implementation period than within direct sourcing categories. Common actions include:

  • Renegotiation of old contracts
  • Structured tendering
  • General spend reduction

Is your organization ready to take on the challenge of becoming more cost aware in indirect spending? Capacent will gladly discuss indirect spend and how to help you on the journey from casual shopping to smart spending!