Indirect spend — often invisible, decentralized and unchallenged — can quietly absorb 10% of a company’s revenue. Yet unlike direct costs, it rarely receives structured oversight. For chief financial officers (CFOs), it represents a largely untapped lever to drive enterprise-wide impact.
While direct materials and labor are usually closely managed, indirect spend is typically scattered across departments, inherited over time and overseen by functional leaders without the time, context or incentive to optimize for value. Here’s what that can look like in practice:
- A mid-market tech company pays three different rates for identical cybersecurity services.
- A global brand uses more than 70 marketing agencies across regional teams with overlapping capabilities.
- A software as a service (SaaS) company renews dozens of tools annually without benchmarking or usage reviews.
- An enterprise human resources (HR) team outsources to three separate recruiting firms — all sourcing from the same candidate pool.
These aren’t outliers — they reflect a broader pattern across companies lacking a coordinated approach to indirect spend. Over time, this blind spot creates ripple effects throughout the business, including:
- Budgets growing unchallenged while savings opportunities go unrealized
- Supplier lists ballooning, creating redundant and overlapping services
- Functional teams spending valuable time managing transactional relationships
- Finance leaders lacking visibility for informed capital allocation decisions
- Contracts auto-renewing with outdated pricing or misaligned terms
- Compliance risks growing as oversight fades
Without clear ownership, supplier relationships stagnate. Functional teams stick with what’s familiar, and tactical purchases gradually accumulate into inefficiencies that slow the business and drain resources.
Procurement as a strategic lever
To get a handle on fragmented, inefficient spend, more CFOs are adopting indirect procurement — using clear policies, shared visibility and smarter sourcing to drive better results.
Done right, indirect procurement introduces structure and discipline into spending that often goes unmanaged. It helps organizations consolidate suppliers, clarify ownership and establish clear metrics that drive better supplier outcomes.
Organizations that implement structured procurement practices typically see both hard-dollar savings and operational lift. A well-executed transformation can reduce indirect spend by 10%-15% in the first year while freeing up functional teams and improving supplier performance.
Strong procurement practices also unlock:
- Consolidated spend for improved terms and volume leverage
- Full visibility into supplier performance, overlap and spend
- Reduced administrative burden for business teams
- Clearer trade-offs between cost, quality and service
- Better insight into risk and contractual obligations
Just as important, strategic procurement reframes suppliers as potential partners in your transformation — not simply suppliers of goods or services. When selected and managed intentionally, they can bring in specialized expertise, increase speed to value and help internal teams focus on what they do best.
The indirect procurement checklist
For many companies, the need to formalize indirect procurement creeps up gradually until it becomes impossible to ignore. That inflection point often comes around the $250 million revenue mark, when complexity begins to outpace the systems, policies and informal controls that once worked (but it’s worth noting that even companies below this mark can benefit from early structure that prevents inefficiencies from taking root).
At this size, purchasing decisions multiply, often without clear coordination or accountability. What starts as a series of local workarounds can quickly become a structural liability.
The following questions may help assess your organization’s current indirect procurement capabilities:
- Can you identify your top 20 indirect suppliers by total enterprise spend without running a special report?
- Do you have visibility into auto-renewals across your SaaS and service contracts?
- Has anyone benchmarked your pricing against the market in the past 18 months?
- Is there a clear owner for supplier performance management across key categories?
- Do you have a consistent process for bringing on new suppliers that includes competitive bidding?
- Is supplier spend challenged as a part of your budgeting process across corporate functions?
- Are business units and corporate functions bringing cost-savings ideas to reduce party spend?
- Are there policies and controls in place to manage indirect spend?
- Are there visibility tools and controls in place to manage purchasing card spend?
- Do you have visibility into your supplier risk exposure?
If you answered “no” to one or more of these questions, indirect procurement could be a meaningful lever to drive value in your business.
The case for center-led procurement
One proven approach is a center-led procurement model. Unlike fully decentralized or rigidly centralized systems, this hybrid model balances local autonomy with enterprise-wide coordination. It allows teams to tailor supplier relationships to their needs while benefiting from shared insights, negotiated terms and aligned goals.
This approach creates a procurement center of excellence that:
- Sets policies and standards
- Negotiates enterprise agreements
- Provides sourcing expertise to business units and corporate functions
- Maintains visibility across all significant spending
- Tracks and reports on savings and value creation
By treating procurement as a strategic enabler — not just a back-office function — CFOs can realize new efficiencies, reduce risk and unlock competitive advantage through smarter indirect spend.
Transform your indirect spend
L.E.K. Consulting’s Supply Chain and Operations team helps CFOs turn fragmented, inefficient spend into a source of lasting value. In one recent engagement, we partnered with a global manufacturer to build a structured indirect procurement function from the ground up — delivering 15% annual savings across freight, packaging, maintenance and HR services while laying the foundation for long-term efficiency (read more here: Creating Value Through Indirect Procurement in Manufacturing).
Contact us to learn how we can help your organization turn indirect spend into a source of strategic advantage.
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