GPO-Backed Indirect Spend Management

No – indirect spend and indirect procurement are the same thing. The only difference is that “indirect spend” refers to the portion of a procurement team’s total spend that goes towards purchasing goods or services as described above, while “indirect procurement” is the act of sourcing and making those purchases. In the same way, “direct spend” is the process of “direct procurement.”

While indirect spend is for the day-to-day operations of a company, indirect procurement doesn’t add to a company’s bottom line, except for the amount of savings that can be achieved through strategic sourcing or an indirect spend GPO.

The function of a GPO – group purchasing organization – is to aggregate purchasing volume based on demand from a number of different member companies who participate.

By doing so, the GPO acts as a much bigger buyer, giving member companies the leverage of greater purchasing power to negotiate quantity discounts, achieve economies of scale, get preferential pricing, and realize other benefits from manufacturers, distributors, and suppliers. In the process, being part of a GPO strengthens procurement efficiency, boosts realized cost savings, and streamlines purchasing.

A GPO optimizes indirect spend management by unlocking greater purchasing savings potential while enhancing the efficiency of procurement professionals in your organization. Because the GPO handles strategic sourcing, manages supplier relationships, and maintains supplier contracts, it eliminates many of the challenges of getting indirect spend under management and mitigates third-party risk at the same time.

According to ProcureCon, indirect spend comprises 40% of total procurement spend at 40% of companies in the US. For larger businesses that have multiple locations, decentralized purchasing and a lack of oversight can lead to overspending, duplicate or unnecessary purchases, and non-compliance. By handling that indirect spend through a GPO – or at least a percentage of it – you can achieve a much higher level of indirect spend control and realized savings.

Unless your Procurement team has adequate resources, it can be difficult or impossible to accurately gauge supplier performance. According to the 2018 CPO Survey from consulting firm Deloitte, 65% of Procurement leaders have limited or no visibility of suppliers beyond their Tier 1 vendors.

With little capability to monitor and gauge supplier performance, a lack of supply chain transparency introduces potential costs, complexity, and significant risks to an organization.

Working with an indirect spend GPO alleviates the necessity for having to gauge supplier performance for those included within the GPO. That’s because the GPO vendor monitors and maintains the supplier relationships within the offering, handling ongoing certification, verification, and contract terms.

Because a GPO maximizes your identified savings opportunities by motivating suppliers to offer members discounted pricing, on average a company can expect to achieve a cost reduction in your indirect spending of 6% (“above and beyond what they are able to achieve on their own by leveraging a GPO” – The Hackett Group).

An engagement with the Corcentric Indirect Spend GPO is a fast-track to rapid procure-to-pay savings through our streamlined marketplace that provides a one-stop shopping experience.

We help replace your rogue spend, erratic pricing, supplier inconsistencies, and expensive low product volume purchases with pre-negotiated contracts with leading suppliers. Once in place, you can easily source the products your organization uses every day so you benefit from the best possible pricing and service levels.

Corcentric holistically analyzes all expenditures you’ve made in the past fiscal year. From there we categorize which spend is indirect vs. direct, and then deem which indirect spend categories may be impacted with our help. We look for supplier redundancies, large tail spends, and spend volumes overall. These are all factors that would lead us to look into further details regarding a supplier relationship and discover the room for continuous improvement and optimization.

To get started with membership in the Corcentric Indirect Spend GPO, with easy access best-in-class pricing and catalogs from key suppliers that give you spend control, cost savings, and purchasing insights, sign up here.

In addition to the Corcentric Indirect Spend GPO for procurement, we help more than 2,300 companies enhance cash flow quickly through an unmatched combination of software, advisory services, and payments that transform how they purchase, pay, and get paid. Through our leading Source-to-Pay platform, we leverage new technologies to provide AP automation, e-procurement solutions, strategic sourcing tools, and more that integrate seamlessly with whatever ERP you’re running to form a critical part of any holistic procurement strategy.

If you’re looking to truly take control of your supply chain, maximize savings opportunities, and enhance cash flow, let Corcentric show you how to simplify your procurement, accounts payable, and accounts receivable processes.