A “Three-Legged” Stool Approach to Optimizing Indirect Spend
As any procurement professional who’s managed indirect categories will tell you, the relative spend is not equal to the relative headaches. While indirect category spend is typically lower than that of direct expenses, the complexity can be much greater.
To optimally manage the most burdensome indirect categories—e.g., uniform rental, waste & recycling, pest control, security & guard services, and energy & utilities—an equally complex approach is required. Since 2002, we’ve continually refined our solution to these persistently problematic categories. Today, we’re confident that we’ve arrived at the ultimate formula for optimally managing the most complex indirect expenses.
The “Three-Legged” Stool
We’ve likened our formula to a three-legged stool because just as a stool will fall without one of its legs, all spend optimization approaches will fail without any one of the three elements of our solution—expertise; technology; and continuous, vigilant management.
Let’s dive into each of those three “legs:”
Piloting our team are some of the world's leading authorities on our targeted expense categories. These former VP/executive-level operators left their respective field positions to join our team and benefit clients with their deep, intricate knowledge of their industries and those industries’ leading suppliers.
Decades of visibility into best-in-class pricing and terms is only the tip of what they bring; our experts possess a complete understanding of the industries’ suppliers and their very complicated cost models. They use that knowledge to secure optimal costs—across all products, services, and ancillary fees in terms of both quantity/frequency and unit pricing—for each unique client account.
In complex indirect service categories, there’s always a handful of key things even the sharpest category managers simply don’t know that they don’t know. Having a world-class expert to help bring those unknown-unknowns to light and act on them with insight and acumen can reveal huge opportunities that have been lurking just beneath the surface.
It’s the kind of knowledge and experience that takes our clients from playing checkers to playing 3-dimensional chess.
[Our experts are truly world-class—check out their bios on our leadership page and visit their LinkedIn pages.]
It didn’t take long for us to realize that even with the world’s foremost experts on our team, we still needed a tool that enabled our experts to efficiently manage these incredibly complex expenses. So, in 2008, we began developing what would eventually become known today as eMOATSM (Expense Management Optimization & Auditing Technology), our proprietary technology.
Continuously developed since its inception, eMOATSM has evolved from a “black and white” auditing application into a sophisticated, comprehensive expense management tool. We learned over the years that there’s more to optimizing a category than putting good contracts in place and enforcing basic compliance, especially as indirect suppliers relentlessly deploy increasingly sophisticated strategies to grow customer spend and erode savings.
Today’s version of eMOATSM is greatly enhanced, generating a wide range of actionable reports that identify exactly where and how clients’ suppliers are driving up their spend, and alerting our experts to take corrective action. Built not just around the specific industries of the categories we manage, but around the specific suppliers within those industries, eMOATSM is able to audit each individual supplier based on their specific “tricks of the trade” and their nuanced and unique billing practices.
Continuous, Vigilant Management
Without continuous, dedicated, and vigilant management, expertise and technology alone would fail to fully establish and maintain optimal indirect expense programs.
Remember those savings-eroding supplier practices we mentioned earlier? Those tend to increase costs 8-12% per year. Simply put: If you want to make a lasting bottom-line impact in your complex, indirect categories, then dedicated resources must be constantly engaged in the “joust” with suppliers. Without this continuous, vigilant management, your suppliers will be laughing all the way to the bank.
Of course, that kind of resource dedication can pose a huge drain on productivity. To do so smartly and efficiently, the other two “legs” of our “three-legged stool” approach are key—our experts’ inside-and-out knowledge of their categories and eMOAT℠’s ability to bring their attention exactly where it’s needed.
In the end, clients benefit not only from the spend reduction we achieve on their behalf, but also a productivity advantage, as their own resources are freed up to focus efforts on more mission-critical priorities with bigger internal impacts.
Expertise. Technology. Continuous, Vigilant Management. These three elements combine to form our well-honed, “three-legged stool” approach to solving some of the indirect world’s most complex expenses.
In 2023, we’re finding that most departments can’t duplicate any of these elements in-house, let alone all three. As cutting-edge companies make sober assessments of their resources and capabilities, they’re coming to us to solve some of their most persistent problems.