Chances are many businesses are in the throes of finalizing annual budgets for their respective departments. Whether you are looking to trim the fat in some areas or consider new purchases for the upcoming year, CCM has helpful advice on evaluating your indirect expenditures and procurement processes for the next year.
Before we go into our four budget review recommendations, we have briefly highlighted predictions in chain supply and work environments in 2022, which focuses on the continuum of supply shortages and digital transformations in the workplace.
Disruptions in the Supply Chain are not Going Away
Economists predict that we will continue to see barriers to acquiring supplies in 2022 due to labor shortages and high inflation. These two major problems may surpass the risks associated with Covid-19. (See Supply-Chain Bottlenecks, Elevated Inflation to Last Well Into Next Year, Survey Finds, WSJ.) A diverse range of companies from beverage producers (Coca Cola) to electronics and appliances (Samsung) and packaged goods (Unilever, Procter & Gamble) are predicting more disruptions in their supply capabilities. Until bottlenecks from every link of the supply chain (Labor, Warehousing, and Transport) are reduced, delays and disorder will continue to wreak havoc on the supply and demand of goods. For more insights on this issue, see No End in Sight for the Covid-led Global Supply Chain Disruption, Forbes.
Digital Transformation in the Workplace
Additionally, due to the outcome of Covid-19 and evolutionary changes in the workplace, businesses will continue to experience significant digital transformations. Those that do not invest in digital expansions to enhance work productivity may fall behind. According to the International Data Corporation, “By 2022, more than half the global economy will be based on or influenced by digital as most products and services utilize a digital delivery model or require digital augmentation to remain competitive. To compete in a digital-first world, organizations will need to prioritize their investments in digital tools to augment physical spaces and assets.” (See IDC FutureScape Highlights the Critical Transformations Enterprises Must Pursue to Compete in a Digital-First World and Future of work: what boards should be thinking about. PWC)
Four Tips to a Successful Budgeting Planning
Now let’s return to our four evaluation points to consider before finalizing your budget for indirect expenses. Here we go!
1. Conduct Products Evaluations – For your top expenses, include a thorough in-house review of each product or service to ensure they are being used to their full potential. If there are projected increases in any of the services, determine if they are warranted. Request 12-month usage reports from the vendors, check terms and conditions of the contracts and reach out to users of the products. Reviewing long term periods of usage data can also identify items consistently requested outside your contracts. Consider potentially renegotiating such items for more favorable pricing and terms, which leads us to bullet point two.
2. Do Usage Report Auditing – You can retrieve online usage reports for products or services from your vendor representative or on your own via an online service portal with reporting capabilities.
The Covid-19 pandemic caused significant holds on spending, so the 2022 budget may need to consider your 2019 and 2021 spend analysis. Look into usage patterns prior to Covid-19 and consider your return to work transition for determining future use/volumes.
Consistent auditing provides data insights into your activities, volume and spend. Firms or businesses may have software subscription programs that are capable of pulling and aggregating usage content into one place, which is ideal. These programs have automated processes that create efficiencies in the review process. However, often this kind of technology cannot alone actuate savings when departments are siloed and there are no formal procurement processes in place. CCM has been an integral part for many clients to assess and estimate their 2022 spend plan.
3. Share Your Budget with Other Fiscally Conscious Colleagues- If you oversee an annual budget where indirect costs are accounted for, share the information with other budget stewards at your firm or business. Work together to identify similarities in purchases to:
- Reduce duplication of purchases
- Optimize on purchases where there is a primary vendor
- Identify any items in budgets that could be beneficial to more than one group for purchasing power
- If you have agreements that have been in place for multiple years, consider going out to the marketplace to test pricing and service levels. CCM can help in this area.
Consider checking in with your department colleagues on a quarterly basis after budgets are approved to get updates on indirect costs and reduce any dark purchasing across departments.
4. Get an Expert Opinion for Your Budget Forecasting – Consult with a professional in expense reduction areas. Set up an appointment with us or other spend consultants before finalizing your annual budgeting exercise. Getting our professional feedback on pricing benchmarks and product trends may highlight a few areas for improvement. Implementing two or more of these processes will have you on the right track to an improved spend management program.
Good luck to all of those with budgeting responsibilities as you finalize your 2022 budgets, and reach out to us ([email protected]) if you would like our professional support for any of these tips!