Using Cost Tables to Find Savings in Indirect Spend

Indirect spend categories can eat up a big part of your budget. Think of items like janitorial services, IT resources, packaging, freight, capital equipment, and warehouse services. These are often overlooked because they aren’t directly tied to production. But they add up quickly. One simple way to find savings opportunities on indirect spend is by using cost tables. 

What is a Cost Table? 

A cost table is a list of everything you buy with the key factors that drive their cost. It helps you see what’s really behind the prices you pay. This makes it easier to spot cost savings opportunities. 

For example, if you’re buying janitorial services, the cost drivers might include: 

• Square footage of your building 
• Number of rooms 
• Labor categories needed (cleaners, supervisors, etc.) 
• Hourly labor rates 

You can build a cost table for any indirect spend category to help identify savings. 

How to Use Cost Tables 

Start by gathering data on the things you buy in an indirect category. Look at contracts, purchase orders, and invoices. List out each item and break down the cost drivers. Then, compare costs across suppliers or locations. This will highlight any areas where you may be overpaying. 

Here’s how this could work for a few common indirect spend categories: 

IT Contract Resources 

• Hours of work required 
• Skill levels needed (junior, senior, etc.) 
• Hourly rates per skill level 
• Location (onsite vs. offsite) 

Corrugated Packaging 

• Material thickness 
• Box dimensions 
• Volume of boxes ordered 
• Freight costs for delivery 

Freight 

• Shipping lane or distance of shipment 
• Weight and freight class  
• Mode of transportation (Truckload, LTL, ocean, etc.) 
• Accessorials 

Why Cost Tables Work 

Cost tables let you see where your money is going. By breaking down each item into its cost drivers, you can: 

• Compare costs more easily across suppliers 
• Find areas to negotiate better rates 
• Negotiate cost-saving with objective cost data 

We’ve seen companies use cost tables to identify and implement cost savings on a wide variety of indirect categories.  Some examples include: 

• $670k/year savings on miscellaneous hardware at a truck components supplier 
• $1.2M/year savings on IT contract resources at an industrial manufacturer 
• $132k/year on corrugated packaging at an automotive supplier 

A few other examples of indirect categories where cost tables have been successfully applied include freight, janitorial services, capital equipment, and warehouse services. 

Next Steps 

Building a cost table takes some time up front, but it pays off quickly. Start by determining the category you want to focus on. Sometimes it makes sense to segment spend into sub-categories and focus on a group of services or parts that can be sourced from the same subset of suppliers. 

Next, brainstorm possible cost drivers and build a template.  You’ll want to include physical attributes and/or service categories as well as commercial terms.  Sometimes, we’ll add key calculations such as $/lb for freight or $/sq ft for janitorial services. 

Finally, populate your cost table with past spend.  Then, add to your cost table whenever you conduct a market test for the target category.

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