Groundbreaking Study Underscores the Increasing Importance of Indirect Spend Management for F1000 Companies
You may have heard that Denali Group recently completed and released findings from our comprehensive Indirect Spend Management Benchmarking Study. We found the results to be extremely compelling. Through a broad-based study, we were able to evaluate best practices and more than 50 qualitative and quantitative benchmarks - including practice points across important dimensions of Indirect Spend. We found Indirect Spend Management has become increasingly important to Fortune 1000 companies due to critical factors, such as a growing Indirect Spend base, more effective Procurement tools and technologies, and increased confidence from stakeholders.
Our initial goal was to help participants identify strategic and tactical Procurement initiatives that can improve competency in managing Indirect Spend - those that drove more savings and created more value for the organization. With an average return on investment of 12 times their cost in savings, we found that Indirect Procurement organizations are indeed becoming major value contributors. On average, participants saved 9 percent of total Indirect Spend annually, which makes it a "no brainer" for organizations to provide greater focus on Indirect Procurement.
Most metrics and practices were organized across three primary themes: Value Creation, Operational Excellence, and Strategies for Growth.
More than 30 large-cap, North American firms across 9 industries participated in the study. The average annual Indirect Spend was on average $2.6B, with 85 percent actively managed by Procurement utilizing more than 4,000 suppliers. The spend distribution for the Indirect Spend category is depicted below:
Historically, Procurement organizations have focused mainly on Direct Spend, leaving much of Indirect Spend to be managed by internal stakeholders. The trend we saw is that many companies now have dedicated teams focused specifically on Indirect Procurement - the materials and services that do not go into a company's finished product. We saw that top initiatives planned by innovative companies included a greater use of formal category management processes, increased use of technology, and continued organizational centralization and collaboration.
Our study also showed a growing and shifting footprint for new spend categories that were once considered "sacred cows" - including Professional Services, HR, and Marketing - which are now commonly managed by Indirect Procurement organizations. Other trends included: spend increase, from increased outsourcing and use of contract resources; a greater focus on Indirect Spend when compared to previous years; and advances in Procurement technology that are helping Procurement organization gain control and visibility over Indirect Spend.
We found the Top 3 initiatives planned by more innovative organizations in the next 1-2 years included:
1) Procurement Team - Implementing new changes to the existing Procurement team structure
2) Category Management - Enhancing the level of maturity in relation to category management for Indirect materials and services
3) Technology - Investing to improve and/or implement new purchasing and vendor management platforms
Founded in 1996, Denali Group collaborates with supply chain and procurement professionals to deliver more value, faster and more efficiently. Denali's innovative solutions help Global 1000 companies transform organizational capabilities, improve execution efficiencies, increase spend under management, and accelerate time to savings. Services include:
Denali Advisory: Procurement transformation, spend management and strategic sourcing consulting