According to public industry research as well as Fine Tune field intelligence, indirect spend per buyer continues to increase, allowing suppliers to take advantage in lower-tier “nuisance” categories.
CHICAGO, Ill. – Oct. 9, 2019 – Fine Tune, a provider of ‘nuisance expense’ management solutions, has had a front row seat to observe a trend within corporate procurement departments that may offer tantalizing short-term cost savings but compromises bottom lines over the long haul.
Due to corporate-level downsizing as well as merger and acquisition activity, procurement departments are continually being asked to do much more with fewer resources.
Spend under management per buyer has steadily risen, requiring procurement staff to interface with an increasing set of suppliers, including managing entirely new categories.
With procurement professionals overwhelmed, they’re unable to take a proactive and vigilant approach to burdensome indirect expense categories—particularly the most complex services in this arena, such as uniforms, waste disposal/recycling, and pest control services.
Fine Tune classifies these categories as ‘nuisance expenses’ – complex categories which require more time to manage than they are worth, eroding profits and diverting valuable company resources from mission-critical areas.
“Since the Great Recession, we’ve noted the same phenomenon in procurement departments over and over again: when ‘Bob the Buyer’ retires or quits his job, most companies aren’t hiring a new ‘Bob.’ Rather, the rest of the team is splitting up Bob’s workload,” said Rich Ham, CEO of Fine Tune. “If one of our clients’ average annual vendor spend per buyer was $35 million in 2007, odds are it is $70 million today. That obviously comes with the benefit of departmental cost savings, but it also comes with a huge potential cost – our clients are no longer equipped to manage their full portfolios of expenses with any sort of dedication and vigilance.”
Spend Matters 2017 research paper sponsored by Amazon Business, Fix the Tail to Propel Procurement: Attacking the Tail Spend Problem in B2B, found that “the average procurement full-time equivalent (FTE) manages more than $50 million in indirect spend, 300 suppliers (with a few dozen key suppliers and a few hundred in the tail) and more than 2,500 purchase orders per year.”
As a result, procurement departments face a critical predicament where they no longer have the time and resources to be a strategic and proactive driver of the business.
Ham continued: “I met with a client last week whose indirect buyers are each responsible for nearly $100 million in annual spend. This is a dream scenario for lower-flying indirect suppliers, where seven-figure national accounts are going largely unmanaged. Bottom line, these buyers have been forced to develop new strategies to enable them to keep up. And many have, but many are still figuring out how to deal with these growing demands.”