The Hidden Costs of Indirect Spend

Managing indirect spend can be a challenge for any hospitality-driven business. Hidden costs can steadily accrue, placing increased strain on your margins. This blog explores these costs and offers strategies to identify and mitigate them, essential for hospitality managers looking to optimise operations and increase profitability.

Inefficient inventory management:  Poor inventory management can lead to overstocking, understocking, and wasteful expenditures. To combat these issues, managers can leverage technology to organise and optimise their inventory systems. Modern inventory management software offers real-time tracking, automated reordering, and data analytics, enabling managers to make informed decisions based on actual usage patterns and demand forecasts. This integration of technology not only streamlines the inventory process but also reduces the likelihood of costly inventory mishaps, ensuring that resources are used efficiently and effectively.

Supplier Management: Hidden costs often lurk in sub-optimal supplier contracts where businesses are paying too much for supplies and services or receiving ineffective advice. Engaging in collective bargaining or joining a purchasing consortium, can lead to better rates for your indirect spend. This option also streamlines the process of finding the right supplier and negotiating new contracts.

Energy Efficiency: Energy consumption is a significant indirect cost in today’s economic climate, in fact the Carbon Trust estimates that energy accounts for 5 to 12% of operating expenditure for hospitality businesses. Strategies to cut down energy expenses include upgrading to energy-efficient appliances, integrating renewable energy sources like solar panels, and training staff on energy conservation practices. Accurate tracking through energy audits and benchmarking can help you identify what the best areas for your business to target and can help you keep track of your progress. These measures not only reduce costs but also contribute to the sector's environmental sustainability efforts. For more energy management strategies click here.

Staff Training: Often overlooked, staff training is crucial in managing costs. Whether through misuse of supplies or inefficient energy usage, undertrained staff can inadvertently contribute to increased expenditure. By educating staff on the importance of cost-saving measures and efficient resource utilisation, businesses can significantly reduce spend. This can include training on proper use and conservation of resources, adhering to inventory protocols, and understanding the financial impact of their actions. A well-trained team can identify and address inefficiencies in everyday operations, making them a first line of defence against wasteful practices. Additionally, regular workshops and refresher courses can keep staff updated on best practices and new technologies, further enhancing their ability to contribute to cost-effective operations.

Uncovering and addressing the hidden costs in indirect spend is vital for the financial health of any hospitality business. Entegra can help you manage your indirect spend with a broad selection of specialist suppliers and in-house advisory services, which work to streamline both your procurement process and business strategy. If you want to find out more about how Entegra can help your business save, contact us below and get a free cost consultation.