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:
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.
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:
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.
This issue is becoming more common across multi-site and mid market businesses because structural pressure is increasing. The main drivers I see are:
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.
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:
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.