The list of all the possible expenses a business can face on a daily, monthly, quarterly or annual basis would be almost too many to count, and for many business owners, a painful reminder of just how many expenses there are.
But there’s good news! We can lump those varying expenses into two groups (however expansive) – direct costs and indirect costs.
For the uninitiated:
Direct costs, courtesy of businessdictionary.com, are “expenses that can be traced directly to (or identified with) a specific cost centre or cost object such as a department, process, or product.”
In short: costs directly associated with the production of a good or service.
Indirect costs, again courtesy of businessdictionary.com, are “expenses (such as for advertising, computing, maintenance, security, supervision) incurred in joint usage and, therefore, difficult to assign to or identify with a specific cost object or cost centre (department, function, program). Indirect costs are usually constant for a wide range of output, and are grouped under fixed costs.”
In short: costs associated with running a business, but not directly related to producing a good or service.
In many cases, indirect costs are purchased from suppliers known, for our purposes, as indirect suppliers.
Indirect suppliers run the gamut – from consultants to IT professionals to cleaning and catering suppliers. As you can tell, indirect costs are a varied group and, as such, indirect suppliers are too.
Purchasing/procurement professionals face an interesting challenge when it comes to indirect costs and, subsequently, indirect suppliers. Often, corporate cost-saving directives focus on reducing direct costs, but neglect potential indirect cost savings.
In defence of such companies, saving on indirect costs is difficult – with so many avenues it can be hard to choose which indirect costs (and which indirect suppliers) to target. Can costs be found in IT? Consultancy services? Marketing? Office supplies?
How can e-procurement help?
Without clearly recording and cataloguing each of your indirect purchases, reigning in such spending can be quite difficult.
But with the help of well-designed e-procurement system, this task becomes (immediately) more manageable. That’s because e-procurement systems electronically generate purchase orders, store important receipts and provide real-time data and analytics into all company spending. E-procurement will tell you how much money your company is spending (and on what) with the click of a button.
Of course, executives/managers/decision makers still have to determine what direct cost to cut or what indirect suppliers to negotiate with. But, armed with the data e-procurement provides, that task is much, much easier.
And any help dealing with indirect costs and indirect suppliers should be welcomed.
With Procurify, all of these processes and more are built in features that allow you to streamline your purchasing process, gain valuable insights, and easily increase spend controls. Our mobile app even allows you to manage your spending on the go! Learn more about Procurify here – or dive in head first and sign up for your free trial today!