When should your business invest in indirect procurement?
Here at Ebit we have a simple aim. Helping businesses buy better, so they can invest in what they do best.
And we have delivered for a lot of very different businesses. We’ve worked with retailers, financial services companies, hoteliers, bars, manufacturers, and even Captain Birdseye himself. It doesn’t matter if they were privately owned, backed by PE or listed, all of our 120+ clients lacked the same thing. Knowledge and expertise in indirect procurement or a particular category.
One of the problems facing many businesses is when should they look to bring procurement on line in an impactful way?
Good indirect procurement practices should be implemented in a business as soon as the company begins to scale beyond its initial operational scope. Indirect procurement refers to the purchasing of goods and services that are not directly related to a company’s core production activities but are necessary for day-to-day operations (e.g., office supplies, IT services, software, marketing services, etc.).
Here are some key moments when a business should consider implementing strong indirect procurement practices:
When Operational Complexity Increases
As a business grows, its operational needs become more complex. Indirect procurement covers a wide range of categories such as office equipment, utilities, HR services, and technology. Implementing good procurement practices helps ensure that these needs are met efficiently and cost-effectively, avoiding unnecessary expenses and operational delays.
When the Number of Suppliers Grows
Growth typically leads to an increase in the number of suppliers and vendors. Without proper procurement practices, managing these relationships can become chaotic, leading to poor supplier performance, missed delivery deadlines, or unfavorable pricing. Establishing structured processes early on will ensure better vendor selection, negotiation, and ongoing management of.
When Costs Begin to Escalate
Sounds obvious right? As a business expands, so do the indirect costs of running it. Implementing good procurement practices can help control these costs through better purchasing strategies, price negotiations, and leveraging economies of scale. This is critical to maintain healthy margins and reduce operational inefficiencies.
When Decision-Making Becomes Decentralized
In the early stages, procurement may be handled informally or by a few key people. However, as the business grows and more departments or branches are added, decentralization of procurement decisions can lead to inefficiencies, rogue spending, or misalignment with the company’s overall goals. A formal procurement system ensures consistency and proper oversight across all departments.
When Business Processes Need Streamlining
Implementing efficient indirect procurement processes helps streamline the purchase-to-pay cycle. This reduces unnecessary administrative burden and frees up time for employees to focus on core business activities. Automating procurement tasks and using procurement software are examples of practices that can greatly improve efficiency.
What’s the cost to a growing business?
For a small-to-medium-sized business, setting up a robust indirect procurement function can typically cost anywhere between £75,000 and £250,000 for the first year, with annual ongoing costs thereafter. Here’s a basic breakdown of costs:
Procurement software: £5,000 – £100,000 per year
Personnel: £30,000 – £80,000+ per full-time employee annually
Consultancy & implementation: £10,000 – £50,000+
Training & development: £5,000 – £20,000
Supplier management tools: £5,000 – £30,000
Automation/integration: £10,000 – £50,000+
Operational expenses: £10,000 – £50,000+ annually
Factors That Affect Costs
Size and Complexity: Larger businesses with more diverse procurement needs will have higher costs. More suppliers and categories require more extensive tools and personnel.
In-House vs. Outsourcing: Outsourcing procurement services can reduce upfront costs but may introduce long-term service fees.
Technology Choice: The range of procurement platforms and tools available can lead to significant variations in price. A small business may start with a more cost-effective, SaaS-based solution, while larger companies might require more comprehensive and integrated systems.
Scope of Implementation: A business that requires global procurement solutions, detailed analytics, and automation will likely incur higher costs than one focused on simpler, more regional procurement activities.
Planning for this investment early helps ensure cost-efficient procurement that can support long-term growth. So can looking to
Virtual Procurement
Our Virtual Procurement service can help businesses develop their indirect procurement function from the ground up, or support a growing team and provide SME expertise where needed by providing a flexible, on-demand procurement team. Here’s how we can help you drive success:
- Expertise on Demand: EbitIP offers access to a team of experienced procurement professionals who can support or bridge gaps within your existing skills base. Complimenting your existing team with our unique blend of data, expertise and insight to deliver successful procurement projects
- Cost Savings: By leveraging our network of Subject Matter Experts and constantly refreshed market data, we can help negotiate better terms with suppliers, leading to significant cost savings.
- Efficiency and Flexibility: The virtual procurement model allows businesses to access procurement support as needed, without the overhead of a full-time team. This adds obvious value for those companies with no procurement function, however, many of our most successful projects are delivered when we support an existing small team. By providing the specialist knowledge and frameworks needed to bring key stakeholders and suppliers to the table we have been able to deliver incredible results
- Comprehensive Support: We don’t just “buy”. We work with across the business to provide tools and templates for tenders and supplier management. This can be developed with remote training and development for procurement and non-procurement teams.
- Improved Supplier Management: Our service includes contract management and compliance reporting, a vital tool to help businesses get the most value from their supplier relationships.
We’re proud of the clients we work with and the projects we have completed. The savings and service improvements we have delivered have helped many companies add value to their bottom line. Our average ROI remains 5:1 across our client engagements. If you want to find out how we can make a difference to your business start the conversation.
