5 signs your procurement process needs an overhaul

Indirect spending can be the silent killer.

Software, consultants, office supplies and maintenance…whether you know it or not these costs are taking a bite of your bottom line. In fact, Software and Tech spend is often one of the five largest spend categories (behind line items like Cloud, Advertising, and Payroll), with an estimated 11% growth in worldwide business spending.

But cutting back on these costs never feels quite as urgent as purchases tied directly to revenue. So, how do you know when it's time to prioritize indirect spending to get the right controls in place?

As the founder of a procurement automation startup and now the lead architect of Ramp Procurement, I understand the common challenges businesses face here and strategies they can adopt to uplevel their procurement processes.

Here are the five inflection points every business leader must know:

1. Your company is growing–and so are your expenses

If your company is experiencing high growth, it’s likely that your expenditures are increasing across the board. More employees, big projects, and new departments often come with a wider range of indirect costs—everything from travel expenses to software tools. Not to mention the hype around AI and companies looking for ways to automate and streamline their workflows. As the scale of your spending grows, it becomes harder to manage without a dedicated procurement department or an updated process.

Ramp’s transaction data indicates a 24% rise in year over year software spend. Businesses are doubling down on this investment in particular.

A well-structured process can bring visibility to your spending patterns and help put proper controls in place. Without this dedicated attention, businesses in growth-mode can quickly see spending become chaotic and unmanaged. At this point, if your procurement process is still an afterthought, it’s time for a revamp.

2. Employees are bypassing approvals

Rogue spending occurs when employees make purchases without following established approval chains or proper authorization. This leads to redundant purchases, budget overruns, and a lack of accountability.

When employees bypass the procurement process, they may just be simply unaware. Unaware of your existing intake and approval process, unaware of preferred vendors, or some other facet of the process.

It’s crucial to optimize procurement for the employee experience, making it dead-simple to follow and continually engaging and educating employees on the proper protocols. This can eliminate rogue spending and ensure all purchases are aligned with company goals.

3. You have multiple vendors doing the same thing

Does your marketing department have its own design software—while your product design team uses something similar, but different? Are multiple departments paying for different versions of the same project management software? This kind of duplication is a major red flag that your procurement process lacks oversight and creates a serious headache for your IT and Security departments.

When different teams make purchasing decisions independently, you end up with overlapping vendors that serve the same purpose, while duplicating costs. Centralizing purchasing decisions helps ensure products and services are shared where possible, reducing unnecessary costs and promoting standardization across the company.

4. Your Legal and Security teams lack visibility

Procurement is inherently cross-functional. A lack of stakeholder collaboration can result in a host of legal and security problems. Contracts signed without proper review can expose your business to non-compliance and liability risks, while purchases made without security checks can lead to data vulnerabilities.

Don’t play with fire. Instead of waiting until you’re exposed to a lawsuit, be proactive.

An effective procurement process is highly visible and includes centralized discussions from key collaborators across Legal, IT, and InfoSec. This not only mitigates risks but also ensures transparency and control over spending.

It’s time to eliminate the black-box of procurement, and implement a more structured approach.

5. You’re experiencing poor vendor performance

Poor vendor performance can directly impact company performance and productivity. This isn’t something to take lightly. Think of all suppliers as partners—integral to operational efficiency. Poor supplier performance can lead to delays, unmet project timelines, and increased costs, ultimately affecting your organization’s ability to meet its goals.

A robust procurement process involves regular supplier evaluations, performance tracking, and clear communication of expectations. If your current procurement process doesn’t allow for ongoing supplier management, you may face reliability issues that hinder your business’s growth and efficiency. Addressing supplier issues promptly is key to maintaining strong vendor relationships and ensuring consistent service quality.

Take back control of your spending

Indirect costs may not always get the same attention as direct expenses, but they play a critical role in your company’s overall financial health. If you recognize any of these signs in your organization, it’s time to take action.

Learn how to take control of your indirect spend with Ramp Procure-to-Pay.