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Addressing CSR and Sustainability Goals Through Improved Indirect Spend Management | Spend Matters Analysis

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© Spend Matters. All rights reserved. 1 The list of corporate social responsibility (CSR) and sustainability risks in the physical supply chain is long. When securing direct materials, procurement organizations must assess factors from restricted or hazardous substances to the kind of labor that went into raw material extraction and even political restrictions like sanctions on whether companies from certain countries are even allowed to do business with you. Because of these and numerous other potential issues, many companies have begun to focus on identifying and eliminating such risks from their supply chains with the help of third-party CSR data sources and risk-monitoring platforms. But while the value of assessing CSR risks for direct materials spend has gained prominence in recent years, the other side of the procurement coin, indirect spend, has not received nearly as much interest. That's a shame — and a risk in itself. Especially when you consider the mostly unmapped territory of tail spend, indirect procurement can actually contain CSR risks just as harmful as those found in direct materials spend. Part of the issue is that indirect spend, despite its impressive size and the number of resources dedicated to supporting it, also has several unique and persistent challenges that procurement professionals need to address. To get to the roots of the problem, let's take a look at the scope and nature of indirect spend, including trends driving its growth, and how several factors specific to indirect categories make these purchases more difficult to manage. Indirect Spend: Background and Context While direct materials spend is an easy concept to grasp, indirect spend can feel a bit slippery. That's because its definition often frames the concept by declaring what it isn't. Indirect spend refers to purchased goods or services that are not directly incorporated into a product or service delivered to a customer. Said another way, indirect spend encompasses goods and services not for resale. These include office products, IT equipment and safety goggles, as well as supporting services such as utilities, travel, corporate promotional items, consultants, janitors, legal counsel, marketing (advertising) and outsourced services like call centers. Given the broad scope of goods and services that a company may choose to use in support of production, the size of a company's indirect spend can be considerable. According to the Dryden Group, a provider of procurement outsourcing services, indirect spend represents 15%–27% of revenue at a typical company. T R E N D A N A L Y S I S Addressing CSR and Sustainability Goals Through Improved Indirect Spend Management (Part 1): Background and Challenges Nick Heinzmann

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