What's Happening?
A recent report by procurement consultancy Efficio reveals that over three-quarters of chief procurement officers and chief financial officers acknowledge that more than a quarter of indirect spending at their firms occurs without financial oversight.
The study surveyed 300 senior leaders from companies across the UK, Germany, Nordics, and France, each with sales exceeding £1 billion. The findings indicate that 85% of respondents admitted to lacking oversight in indirect spending, with only 19% expressing full confidence in their understanding of their organization's indirect expenditures. The report highlights 'maverick spending' as a primary cause of cost leakage, particularly in IT and software departments, which are considered the riskiest for such financial losses.
Why It's Important?
The lack of financial oversight in indirect spending poses significant risks to companies, especially in a volatile global market. Indirect expenditures account for nearly half of a company's total spending, making the absence of oversight a critical issue. This situation can lead to substantial financial losses and inefficiencies, impacting a firm's ability to control costs and maximize efficiency. The report suggests that much of what is considered 'unaddressable' spending could be managed with better visibility, structured review processes, and stronger alignment between procurement and finance teams. Addressing these issues is crucial for companies to maintain fiscal responsibility and long-term sustainability.
What's Next?
Efficio's report indicates that indirect spending should be a board-level issue, with 93% of senior leaders agreeing on its importance. Despite this, only 19% of companies have an annual review process for indirect expenditures, which could potentially save an additional 15% of wastage. The report suggests that organizations need to implement structured review processes and enhance governance and accountability to effectively manage indirect spending. As companies face increasing pressure to control costs, it is likely that more firms will prioritize financial oversight in their strategic planning.
Beyond the Headlines
The report underscores the need for companies to rethink their approach to financial oversight, particularly in the context of indirect spending. The reliance on IT and software, coupled with the rapid adoption of AI technologies, presents unique challenges that require innovative solutions. Companies may need to invest in advanced analytics and automation to gain better insights into spending patterns and improve decision-making processes. This shift could lead to a more sustainable and efficient allocation of resources, ultimately enhancing a company's competitive edge in the global market.
