Indirect costs, 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.
What is indirect procurement software?
Well…that’s a bit of a tricky answer. Technically speaking, there is no such thing as indirect procurement software. What exists, rather, are various e-procurement software solutions that any company/executive/manager can use to help manage and streamline indirect procurement purchases.
Why should you care?
Then answer is rather simple – indirect procurement costs can be many and vast – think a traffic jam where each car represents a Let’s take a look at one example: office supplies. How many different types of office supplies can you name? Chairs, desks, pens, paper, computers, printers…the list goes on. (Not mention IT, consultancy services, marketing etc.)
Depending on the product a business produces (for our purposes, let’s say the business in question sells canned tuna) office equipment such as the examples listed above are not directly related to the production of that particular good.
Each of the aforementioned supplies is important, without a doubt, but not critical to canning tuna.
The trouble with indirect procurement software
Because indirect procurement costs can come from myriad sources, it can be difficult to target which cost you want to reduce. Facing such an assortment of costs (and, therefore, numerous potential avenues for savings) is not typically, a hurdle faced when examining direct procurement spend.
What’s more, directives from executives/decision makers often focus on reducing direct costs (labour etc.). That’s because there are many examples of indirect costs. It’s easier, frankly, to target direct costs.
Note: Depending on the business in question, direct costs can also come with hefty price tags, and they can easily be the majority of business expenses. Canning tuna, for instance, is one such business. The machinery needed to process and can tuna is likely very expensive.
As a result, an executive/manager may ask himself/herself “how can I save on this pricey piece of equipment?” rather than “how can I save on all of these different expenses?”
How can e-procurement software help?
An e-procurement software solution will immediately help you manage your indirect procurement/purchasing costs.
E-procurement software electronically generates and catalogue all purchase orders (and uploaded receipts). This is a critical function: by cataloguing all purchase orders and uploaded receipts, executives/managers will have easy access to a complete record of indirect procurement spending.
These records (often described as real-time data and analytics) are vital for budgeting and forecasting purposes. How much money is being spent (and on what) will be known at all times. Of course, knowing that information will very clear tell whomever is analyzing that information where money can be saved.
Ok, we’ll admit. There is technically, no such thing as indirect procurement software. But the good news is, there is e-procurement software, which will effectively handle all indirect procurement spending.
Of course, what a business does with the information they glean from its e-procurement is up to those in charge of budgets and finances. But getting that information is a big step in the right direction. Do yourself a favour, implement an e-procurement solution like Procurify, in your business today and begin managing your indirect procurement immediately.