There is hidden value in your indirect spend: How to get it? (3 of 3)
With pressure only increasing on businesses to be more profitable, every source of potential value – even those hard to reach, like indirect spend – needs to be considered.
Previously we determined that the value hidden in your indirect spend is indeed reachable in a cost-effective manner. This relies on the application of the trends of digital connectivity of businesses and the adoption of a more open stance to cooperation between entities to secure ‘win-win’ outcomes. These trends are the foundation of the concept of an online store that that I introduced and is focussed on the sale of indirect spend categories in demand by most businesses.
To assess the advantage of the online store concept, in the pursuit of the hidden value in your indirect spend, we should consider the alternatives available. The key question here is what is the ‘job-to-be-done’ to unlock this hidden value?
It is a set of ‘strategic sourcing projects’ (SSP) for each of the indirect spend categories from which the business is seeking to unlock value. These SSPs can either be executed in-house by the business on their own without outside help which typically would include some of; SSP expertise, established supplier relationships, access to scale/potential bundling with other clients and negotiating skills and leverage.
Undertaking these SSPs in-house has the advantage of no cash outlay either in direct fees or in a share of the savings captured, but do consume internal time and resources. The opportunity cost of this will be assessed against the probability of the value unlocked given the limited negotiation leverage available to the internal SSP team in these categories. As noted in the previous article; The hidden value in your indirect spend: Where is it? most business leaders will be reluctant to incur project costs to mine from this source of value.
So, what about the alternative to in-house, engaging a consultant to undertake the SSPs. This may make commercial sense and the business case will depend on the cost-benefit. The costs will include the interruption to the business of having an outside party engaged as well as the in-house time and resources that will be required to interface with the consultant on the SSPs. Another aspect to include in the analysis is the time to the banking of the savings as the SSPs may take multiple weeks, even months to finalise the contracts with selected suppliers. The most visible of the associated costs will be the fee for service, whether direct or as a share of the savings.
Now let’s consider the concept of an online indirect spend store. The foundation of such a store, which is akin to a ‘brick-and-mortar ’store, is that the online store has already negotiated deals with its suppliers (for: price, payment terms, and quality of product, availability, etc). In effect, it has already undertaken SSPs for each of the indirect spend categories that it has available on its virtual store shelves.
For a business seeking to unlock the value in their indirect spend, the following aspects of this online indirect spend store concept are beneficial:
- It is free to use and is accessible via any browser and no new tech is required
- The deals available have already been negotiated, the business simply compares these with what they can get from their exiting supplier
- Value is available immediately with the minimum of business interruption and internal resource consumption
So, ‘How to get it?’ - this value embedded in a business’ indirect spend.
Find and shop at an online indirect spend store.
Author: Andrew Boyes-Varley
Andrew is a Managing Director at In4trade Limited. In4Trade is a new platform created to unlock value by bundling the indirect spend of 'affiliated' companies, including: Private Equity owned, Industry Association and Chamber of Commerce members. In4Trade Limited is a member of the Coventry & Warwickshire Chamber of Commerce.