In the realm of commercial real estate, managing the overall spend across multiple properties can be a daunting task. Everyone involved in the purchasing process has the same objective: do more while spending less. When approached strategically, managing these expenditures can yield substantial savings and operational efficiencies.
Indirect spend encompasses the costs associated with purchasing goods or services that do not directly contribute to the core services your organization provides. Let's do a little refresher on what this means:
For commercial REITs, this includes categories like flooring, paint, maintenance, repair, and operations (MRO) supplies, among others. Items such as office supplies, travel expenses, and minor local purchases also fall under this category. These expenditures, although not directly related to your primary business operations, are essential for the smooth functioning of your properties.
Tail spend refers to the smaller transactions that make up about 80% of purchasing activity but only account for 20% of total spend. These high-frequency, low-value purchases are often overlooked and unmanaged, despite being essential to operations. Examples include minor maintenance supplies, petty cash items, and spot purchases.
Maverick spend occurs when purchases are made outside of approved contracts, leading to lost cost savings and increased risk. These unauthorized transactions can erode the benefits of negotiated discounts and rebates, ultimately impacting your bottom line.
A GPO can be instrumental in managing indirect spend by leveraging pre-negotiated contracts and providing access to a network of vetted suppliers. Here’s how a GPO can help:
Cost Savings: By utilizing group purchasing contracts, you can leverage the best pricing and terms, leading to significant cost reductions.
Time Efficiency: Streamlining the procurement process with pre-negotiated contracts saves valuable time, allowing your team to focus on other critical areas.
Quality Assurance: GPOs thoroughly vet suppliers to ensure high standards of quality and compliance, reducing the risk of inferior products and services.
Compliance and Expertise: With expertise in regulatory requirements, a GPO helps ensure that all procurement activities comply with relevant laws and standards, mitigating non-compliance risks.
Partnering with a GPO is a proven strategy to manage indirect spend effectively. The right GPO will handle category management from sourcing to performance, ensuring compliance and centralizing the purchasing process. This holistic approach provides a comprehensive view of overall spend, helping your organization avoid leaving money on the table.
Ready to get started? Contact our team to learn how we can help you manage your indirect spend and streamline your purchasing process.