What's Happening?
Efficio, a procurement consultancy, has revealed that over three-quarters of chief procurement officers and chief financial officers report that more than a quarter of indirect spend at their firms occurs
without financial oversight. This lack of oversight is attributed to 'maverick spending,' which is a leading cause of 'cost leakage' in an uncertain global market. The consultancy surveyed 300 senior leaders across the UK, Germany, Nordics, and France, finding that 85% of respondents acknowledged this issue. Indirect expenditure represents nearly half of a company's total spend, posing significant risks due to the lack of planning and oversight. The riskiest department for cost leakage is identified as IT and software, with firms continuing to invest heavily in AI. Despite the challenges, only 19% of senior leaders have an annual review process for indirect expenditures, which could potentially save an extra 15% of indirect spend wastage.
Why It's Important?
The findings underscore the critical need for financial oversight in managing indirect spend, which constitutes a significant portion of a company's budget. Without proper oversight, companies risk financial instability and inefficiency, particularly in a volatile global economy. The lack of visibility and governance can lead to substantial financial losses and missed opportunities for cost-saving measures. As businesses face increasing pressure to control costs and maximize efficiency, addressing these oversight gaps is essential for maintaining competitiveness and fiscal health. The report suggests that structured review processes and stronger alignment between procurement and finance teams could mitigate these risks and enhance financial management.
What's Next?
Efficio's report indicates that indirect spend should be a board-level issue, with 93% of senior leaders acknowledging its importance. Companies may need to implement more rigorous oversight mechanisms and review processes to manage indirect expenditures effectively. This could involve enhancing collaboration between procurement and finance teams and adopting technologies that provide greater visibility into spending patterns. As the global market continues to evolve, businesses will likely face increased scrutiny over their financial practices, necessitating proactive measures to ensure accountability and transparency in indirect spending.
