Indirect spend refers to the many goods and services needed to run a business on a day-to-day basis. This includes categories like MRO, facilities management, IT services, marketing spend, office supplies, and more. Optimizing indirect spend management can yield significant cost savings and operational improvements. Read more about how Better Tail Spend Management = Hidden Savings.
There are several tactics companies can use to drive rapid, medium-term, and longer-term benefits from third-party spend:
Short Term Wins: Tactical Supplier Negotiations
For quick cost reductions in the next 1-2 months, companies can aggressively renegotiate concessions with suppliers through tactical negotiations. However, this approach risks damaging supplier relationships. Read 5 Easy Ways to Improve Supplier Relationship Management.
Medium Term Lever: Group Purchasing Organizations and Purchasing Cooperatives
Joining a group purchasing organization (GPO) or a purchasing cooperative can drive savings in 2-6 months by aggregating purchase volumes across businesses to improve leverage. However, traditional GPOs have limitations around narrow category focus and restrictive supplier contracts. Read 5 Ways GPOs and Supply Chain Cooperatives Optimize Procurement.
Long Term Play: Digital Purchasing Cooperatives
Over a 6+ month timeframe, the collective intelligence unlocked by digital cooperatives drives even deeper savings and operational improvements through data sharing, supplier diversity, and connected technology. Read more on Understanding the Role of Supply Chain Cooperatives in Risk Mitigation and Enhanced MRO Management.
Four Key Benefits of Digital Purchasing Cooperatives
While traditional GPOs centralize purchasing power, digital cooperatives create a strategic partnership between members. Here are four top benefits:
- Increased Cost Savings Through Category Expertise: Specialized category expertise in a digital cooperative accesses more indirect spend and drives deeper savings. Cost reduction is just the starting point.
- Enhanced Visibility Through Data Sharing: Members share insights on macro and micro supply chain trends. This visibility beyond pricing enables better decision making through collective intelligence.
- Improved Responsiveness Through Supplier Diversity: A broader supplier network reduces sole-source dependency. Digital tools also enable risk monitoring, stress testing, and scenario planning.
- Future-Proofing Through Connected Technology: Access to digital procurement technologies gives members needed capabilities without large individual investments. This drives efficiency and innovation.
Start Your Digital Journey
Transitioning to a digital cooperative takes as little as 2-6 months for quick wins once the right strategies are in place. The benefits of leveraging collective intelligence grow substantially over a 6+ month period.
For companies seeking to unlock new value from indirect spend, digital cooperatives provide compelling medium and long term optimization levers. Let’s connect to explore the potential of collaborative procurement.
