It’s an all too familiar cycle: your board calls for tighter budgets, your CEO responds and you and your finance team are left reforecasting spend and reinforcing procurement controls. Yet many finance leaders still struggle to answer why forecasted savings don't consistently reconcile to the P&L. In today's high inflation environment, indirect spend has become one of the least visible but most commercially damaging areas of financial performance. And the biggest drivers of leakage are ones that most leadership teams tend to underestimate:
- Supplier non-compliance
- Price creep outside agreed mechanisms
- Off contract purchasing
- Unclaimed rebates
- Unauthorised product substitutions
I see it all the time across manufacturing, aged care, retail and multi-site operations. On paper, everything looks controlled, but in reality quiet value erosion is happening every week.
The hidden cash drain no one notices
A signed contract doesn't equal compliance and it doesn't guarantee behaviour, pricing discipline or alignment. Most supplier non-compliance looks like small price deviations, minor substitutions, rebate conditions that go untracked and local purchasing exceptions repeated quietly across sites and cost centres. Individually, they make logical sense and appear immaterial, but collectively they're reshaping the cost base of your business.
The categories I see that are most exposed share common characteristics. They involve high transaction volumes, decentralised ordering, complex pricing structures and limited recurring validation. Typical risk areas include:
- Food and catering
- Office products
- Printing and marketing materials
- Energy and utilities
- Medical and clinical consumables
- Phone and IT services
- Waste
- Travel and accommodation
During a quarterly review for a national retail client, pricing errors and off contract staff purchasing led to $15,000+ in missed savings. Left unaddressed, this would have reduced EBITDA by more than $100,000 each year. Good people, well run business, it’s just that control had simply drifted.
Common areas of supplier non-compliance
This issue is becoming more common across multi-site and mid market businesses because structural pressure is increasing. The main drivers I see are:
1. Price creep
- Small and irregular increases disguised as fuel levies, indexation or "temporary adjustments". Individually these are minor, but cumulatively they become material. Supplier contract compliance starts with catching these early.
- Action: Check contracts for adjustment rules, decline unsupported increases and recover credits.
2. Unclaimed rebates
- Tiered, seasonal and performance based rebates often go unclaimed because no one has time to track it.
- Action: Build rebate tracking into procurement workflows so value on paper becomes cash collected.
3. Product substitution
- Suppliers quietly replace contracted SKUs with higher margin alternatives. This temporary change becomes permanent, unless someone's watching.
- Action: Monitor SKUs monthly and require pre approval for substitutions.
4. Maverick spending
- Teams default to old suppliers or "favourites" resulting in higher prices and no leverage.
- Action: Strengthen procurement policy communication and reinforce leadership accountability.
The financial impact for your business
In this business climate, silent leakage from indirect spend weakens your EBITDA, dilutes ROI and inhibits investment in growth activities.
Across many businesses, supplier non-compliance represents between 2% and 6% of total indirect spend. This is money theoretically “saved” but never realised. On a $20 million indirect cost base, that equates to $400K to $1.2M in EBITDA leakage. At standard valuation multiples, that becomes several million dollars of enterprise value impact.
How leading organisations respond
The remedy is recurring commercial validation supported by clear accountability and measurable outcomes. Leading organisations we work with treat supplier contract compliance as an earnings discipline. They don't assume negotiated value will hold, they validate it, enforce it and ensure it converts into realised EBITDA. The objective is not to create friction with suppliers. It's to ensure negotiated value consistently lands in the P&L.
Best practice organisations implement these structured control disciplines:
- Analyse a minimum of 12 to 24 months of invoice data against contractual terms to identify systemic variance
- Run recurring pricing and SKU validation reporting to detect creep before it compounds
- Assign clear ownership of compliance and escalate deviations rather than absorbing them
- Recover credits and correct pricing so the margin base is reset
- Unauthorised product substitutions
When I step into a business, the focus is straightforward: restore margin discipline without distracting internal teams from their day-to-day priorities. That involves identifying structural non-compliance across critical categories, quantifying EBITDA impact clearly and rebuilding control mechanisms so savings are captured now and into the future.
Supplier non-compliance is cumulative and without active indirect spend controls it reduces EBITDA durability, weakens operating leverage eroding enterprise value over time. Signed contracts don't protect margin on their own, enforced contracts do.