As organizations look to combat inflationary pressures on their bottom line, it’s important to examine their indirect spend, covering all the expenses on the materials, services, and maintenance required to operate outside of the main product offering. These are often poorly managed. My company’s recent survey of global procurement leaders and suppliers revealed eye-opening figures around indirect spend. Eighty-two percent of procurement leaders say their indirect spend is not well managed during the sourcing process — leaving substantial cost savings on the table. 

To put the implications of this into context, indirect spend is estimated to equal as much as 20% to 40% of revenue. In a typical Global 2000 company, this translates into costs amounting to billions of dollars, so optimizing indirect spend is a huge opportunity.  

The findings of that survey, 2023 Research Insights for CFOs, are based on data sourced from global procurement leaders and suppliers, conducted in Q4 2022. We also found that, at the same time, nearly half (43%) of suppliers plan to increase their prices in 2023.  

All this means that as it becomes increasingly difficult to squeeze margins from the supply chain, there is an urgent need for CFOs to work with their procurement teams to optimize the full spectrum of their company spend. 

Legacy Sourcing Tech 

Yet maximizing value from this spend is difficult, as current procurement processes are archaic and inefficient, and legacy procurement software is cumbersome, non-intuitive and hard to use. Our survey showed that most CFOs feel their legacy sourcing technology is outdated, non-collaborative and siloed. Ninety-six percent report there is no connection across teams and suppliers, 94% say their tech is not intuitive and 89% report that it doesn’t provide intelligent insights. 

For all these reasons, it has been a real challenge for procurement leaders to get a handle on indirect spend. However, it is vital that buying of indirect goods and services is carried out with the same level of competition, rigor and transparency as working with the supply chain. 

Autonomous Sourcing 

Thanks to innovative technology, there is now a solution to this issue. Powered by artificial intelligence (AI), autonomous sourcing enables precise scoping of project requirements and supports supplier discovery. It uses machine learning (ML) at scale to deliver analysis and insight, ensuring that all third-party spend is tendered fairly, competitively, and transparently. 

It also supports the tendering process, comparing proposals and driving negotiations, while at the same time implementing appropriate guardrails and policies to maintain full organizational compliance and risk management. As a result, CFOs now have visibility and control of indirect procurement. They can be much more confident that they are buying the right goods and services at fair market prices. 

Surfacing Savings 

The introduction of AI and ML into procurement decision-making provides a higher level of control, surfacing savings that were previously very difficult, if not impossible, to secure. 

In addition, autonomous sourcing automates tens of thousands of hours a year of manual tasks such as defining requirements, building RFPs, researching suppliers, analyzing and vetting potential partner for indirect spend options, negotiating commercial terms and writing contracts. So, taking this approach results in a much less labor-intensive process for both the business and the procurement function. 

Self-Service Strategy 

The advent of AI-powered indirect spend efficiency also aligns with wider impetus for autonomous technologies to replace outdated, inefficient business processes. Many CFOs are adopting a self-service strategy for business users to self-serve while simultaneously enforcing company policies to ensure compliance. 

If line-of-business managers are freed from unwieldy procurement processes and empowered instead with user-friendly, self-serve sourcing technology, they are highly likely to embrace this new way of working with enthusiasm. Eighty-five percent of procurement leaders believe that business users would comply with procurement processes if their companies offered intuitive self-service technology. That would also help address the issue of shadow procurement, and free up procurement teams from transactional work. That, in turn, allows them to focus on high-value tasks such as supplier collaboration, product development and relationship building that will help drive growth across the business. 

British Telecommunications, for example, has dramatically reduced the time it takes to source from suppliers through this form of automation, and last year placed more than £3 billion ($3.85 billion) of spend through an AI-powered platform, delivering double-digit cost savings. 

Optimizing Spend 

Until now, CFOs and their procurement teams have not had the means to streamline their indirect spend, even though it is clear that exposing indirect procurement to fair, transparent, competitive processes would produce an opportunity to reduce this expenditure significantly. But now that is changing. Innovative, AI-driven approaches and digital solutions offer forward-thinking finance executives a real chance to take control of their indirect spend, while driving immediate efficiencies and cost savings and, at the same time, mitigating risk. 

Keith Hausmann is chief customer officer at Globality.