The Indirect Spend Blind Spot: HOW Finance Leaders Can Recapture Millions
Guest Contributor Ethan Opdahl
Most finance leaders can recite their cost of goods sold down to the basis point. They know supplier terms, volume discounts, and margin impacts like the back of their hand. But ask about spend on waste management, cleaning, or software subscriptions, and the answer gets vague.
This isn’t an oversight. It’s structural. And it’s costing companies millions annually.
The Problem With Indirect Spend
Indirect spend covers everything a business buys that doesn’t go into the product. Waste management. Software. Temporary labor. Facilities management. Marketing agencies. Insurance.
It typically represents 15-25% of total spending. At many companies, it’s almost entirely unmanaged.
The mechanics are straightforward. Direct materials flow through procurement with competitive bids and contract governance. Indirect purchases happen everywhere. Operations renews the waste contract. Legal engages outside counsel. IT subscribes to software.
Each budget holder makes decisions that seem reasonable. The waste pickup works fine. The software gets used. Nobody questions the pricing because nobody has reason to. It just seems like what things cost.
How Spend Drifts Above Market
Here’s what happens in practice. A facilities manager gets a quote for waste service. Maybe they even get a couple of quotes. They say yes to whichever one is most reasonable. The contract auto-renews annually with a 5-8% escalator. Again, reasonable enough.
Three years later, the company is paying 15-25% more than initially. Market rates might have stayed flat or even dropped. Doesn’t matter. The renewals keep processing. The invoices get paid.
This plays out across dozens of categories. Each individual decision seems defensible, but “reasonable enough” quickly becomes “unreasonable.”
What the Data Shows
Research on indirect spend management reveals a consistent pattern. Companies can reduce spending in these categories by 10-20% without cutting services or quality, just by paying market rates and consolidating volume.
For a company spending $10-20 million annually on indirect categories, that’s $1-4 million in recoverable value. Not theoretical. Actual inefficiency that drops straight to the bottom line.
Consider a recent case study. A property management company was paying well above current market rates for waste service across several facilities. The service was fine. The invoice processed automatically. Nobody questioned it because it seemed normal.
When they finally reviewed the spend and solicited competitive bids, they discovered they could get identical service for less than half the cost. Same pickup schedule. Same service level (if not improved, as they moved to a national player). Just current market pricing instead of a rate that had been drifting upward for years.
This wasn’t a vendor problem. It was a visibility problem.
The Strategic Cost
The financial leakage is significant. But the strategic impact is worse.
When revenue drops and cuts are needed, CFOs without spend intelligence are forced into blunt moves. Hiring freezes. Travel restrictions. Blanket reductions across all departments.
These actions hurt morale and potentially damage growth. Meanwhile, there might be millions in above-market waste contracts, consulting priced 30% above peer companies, redundant software subscriptions, and fragmented vendor relationships that could be rationalized with zero operational impact.
But without granular visibility, finance leaders can’t see the smart cuts, so they make the painful ones instead.
What Visibility Actually Means
Gaining control of indirect spend starts with knowing what the company is actually spending. Not general ledger rollups, but vendor-level, category-level, contract-level, and even line-item level detail across the entire organization.
The harder part is determining whether the spend is appropriate. This requires benchmarking across multiple reference points: current market rates for specific services, what peer companies pay for comparable services, what vendors would charge in a competitive environment.
The difference between “knowing” total waste management spend is $2 million versus “understanding” that it’s 40% above market is the difference between awareness and action.
From Intelligence to Results
Visibility enables different conversations with vendors. Instead of vague requests to “sharpen pricing,” CFOs can present market data.
Most vendors respond constructively when shown credible benchmarks. They would rather adjust pricing to market than lose the business entirely.
But none of this happens without the underlying intelligence infrastructure. Most companies are managing indirect spend by assumption. Assuming contracts are competitive. Assuming pricing is reasonable.
Why This Matters Now
The CFO mandate has shifted. Capital efficiency is no longer just one priority among many. It’s often the primary measure of financial leadership effectiveness.
The CFOs who can identify specific, material savings opportunities backed by data have fundamentally more strategic flexibility than those operating with blunt cost-reduction playbooks.
Indirect spend represents one of the last major categories where most organizations still manage by instinct rather than intelligence. Every dollar overspent on above-market waste contracts, insurance, or software is a dollar that could fund growth initiatives.
For most organizations, the opportunity represents at least $5-15 million per $100 million of indirect spend. Real money. Sitting in the budget. Recoverable through better visibility and basic discipline.
The question isn’t whether the opportunity exists. It’s whether finance leaders have the infrastructure to see it clearly enough to act on it.
Combining indirect spend intelligence with lean principles will supercharge the effectiveness of your team and lower costs. Learn more about the lean principles in finance here, “Leaning Up” the Finance Department”
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