Optimizing Indirect Spending - Finding the Right Transformation Strategy

19 Sep 2011


Optimizing indirect procurement provides an avenue to create a direct bottom-line impact while also improving processes and better enabling strategic objectives. According to Everest Group estimates, even a 5-10% reduction in non-core or indirect spend can translate into a 1-3% bottom-line impact – a significant impact under any economic context, let alone the tough current economic climate. For mature organizations across the globe today, the real question in relation to indirect procurement optimization is not about ‘why?’ but about ‘how?’

There are various options and approaches to optimize the indirect procurement function based on scope of initiative and delivery responsibility (internal or external). This report analyzes four common scenarios namely, partial internal initiatives, partial outsourcing, comprehensive shared services and comprehensive outsourcing. Each scenario has its own strengths, weaknesses, and applicability to unique company situations. Organizations will need to carefully evaluate the business case of each model along with the applicability to their own company situation before making an informed decision regarding the right model.

The purpose of this research is to educate both procurement and business executives on the different approaches to indirect procurement optimization. The report discusses:

  • Importance of optimizing indirect procurement
  • Four typical approaches to optimize indirect procurement dependent on scope (partial and comprehensive) and delivery responsibility (in-house and third-party)
  • Net savings generated under each scenario along with pros and cons
  • Key considerations for selecting a third-party provider

The research draws extensively upon scenario-based analysis leveraging industry accepted standards, Everest Group IP and experience in advising clients on procurement initiatives. The scenario analysis is also augmented by real-life anecdotes.


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