Unlocking Efficiency in Portfolio Companies Through Indirect Spend Optimization

In today’s competitive investment environment, private equity firms are under constant pressure to unlock value quickly across portfolio companies. While revenue growth is customarily the top priority, operational efficiency — particularly in indirect spend — presents a compelling, often overlooked opportunity to drive EBITDA expansion. Why then do less than 25% of PE firms have formal sourcing and procurement strategies or dedicated operating functions focused on these activities?

Indirect spend areas like marketing, logistics, IT, and professional services often comprise 18%–22% of a company’s revenue. But how is it managed? Who exactly is charged with its strategic oversight? Thoughtful and strategic coordination of this spend can deliver significant cost savings — frequently between 8% and 15% — but doing so requires the right tools and approach.

Let’s look at three different avenues for tackling indirect spend such as software platforms, consultants, and managed service firms, and provide perspective on how and when to use each.

The Indirect Spend Opportunity

Indirect spend represents a significant, usually untapped source of value in many companies. Unlike direct procurement, which is closely managed due to its connection to the core product or service, indirect categories are often decentralized and fragmented across business units.

Common challenges that make indirect spend management difficult:

• There is no coordinated collection of your spend data
• Your supplier relationships are scattered, and your limited buys don’t yield purchasing leverage.
• Resource constraints or a lack of resources within lean internal procurement functions
• Siloed decision-making, often at the department or business unit level

By proactively addressing these challenges, companies that take a disciplined, data-driven approach to managing indirect spend can unlock rapid cost savings and create long-term operational leverage — all without compromising business agility or growth.

Tailoring the Approach to Company Stage and Objectives

Not all companies are equally equipped — or equally positioned — to tackle indirect optimization the same way. The right solution depends on the company’s maturity, operating model, and strategic priorities.

Early-Stage Companies

Often lack formal procurement processes or visibility into spend. The focus here is on establishing foundational control and identifying quick wins.

• Recommended Tools: Software platforms or group purchasing organizations
• Goal: Gain transparency, define policies, set up basic governance, and leverage available buying power

Growth-Stage Companies

These businesses need to scale operations efficiently and often face mounting cost pressure. While visibility is still important, execution becomes increasingly critical.

• Recommended Tools: A combination of consultants and/or managed services.
• Goal: Build sourcing strategies, leverage price benchmarks, utilize industry expertise, execute category initiatives, drive compliance with policies and processes, and drive measurable results

Mature or Carve-Out Companies

Often have fragmented systems or inherited cost structures. There is a high premium on speed, sustainability, and accountability in driving change.

• Recommended Tools: Execution-focused managed service providers who supply multiple tools ranging from employee augmentation to providing incremental category and industry expertise, a best-in-class supplier ecosystem, spend leverage, and invaluable sourcing and procurement IT platforms.
• Goal: Rapid impact, sustained execution, full accountability for outcomes, procurement as an enabler for growth

Comparing the Models: Software, Consultants, and Managed Services

One of the common internal debates—particularly in mid-sized or mature companies—is whether to “build” a procurement function internally or “buy” or partner with external execution resources and assets. While internal builds are attractive on paper, they take time, require significant hiring and training, and often lack the urgency and accountability needed to deliver fast results.

In contrast, managed service firms bring experienced teams, a strong supplier ecosystem, significant spend leverage, pre-built assets, and direct accountability from day one, all while taking on the risk to get it right. The focus is 100% on realized value that flows directly to the bottom line vs. identified value.

Managing the Engagement: Best Practices by Model

Regardless of the approach chosen, success depends on how the solution is integrated and governed. Below are a few key best practices for managing different types of engagement:

Software Platforms

• Set clear KPIs and integration goals upfront
• Invest in user adoption and change management
• Ensure reporting leads to real decision-making, not just dashboards

Consulting Engagements

• Define a narrow, actionable scope
• Use consultants to build frameworks, not to own long-term delivery
• Require structured knowledge transfer to internal teams

Managed Services

• Align on outcomes and performance metrics, not just activities
• Treat the partner as an extension of the internal team
• Use ongoing governance structures to maintain transparency and drive continuous improvement

Why Execution-Focused Managed Services Often Win

When speed, accountability, and measurable outcomes are paramount, execution-focused managed services tend to outperform other models. This is especially true when firms like LogicSource bring pre-built assets such as category expertise, OneMarket technology, and significant spend leverage to drive results.

Key advantages include:

• Faster Time to Value: Execution partners start delivering results within weeks, not quarters.
• Sustained Accountability: Unlike consultants, they are measured on performance — not just strategy. Focus is 100% on realized savings vs. identified savings and tracked and reported as such.
• Category Expertise: Specialists know the supplier landscape and leverage collective buying power.
• Market Penetration: Suppliers and categories are continuously sourced multiple times throughout the year. Price benchmarks are constantly updated and monitored throughout the year as market conditions shift.
• Internal Lift: Free up internal resources to focus on growth and core operations.

Crucially, managed services don’t just deliver savings — they build capability and institutional knowledge over time, allowing portfolio companies to sustain results even after the engagement ends.

Conclusion

Indirect spend remains one of the best and under-leveraged levers for portfolio company value creation. But the path to unlocking this value isn’t universal. Depending on the company’s stage, resources, and objectives, different tools — software, consultants, and managed services — play different roles. Nearly every portfolio company works with consultants to a certain extent, but the degrees of success often vary widely,

While each approach has its place, firms seeking real, repeatable, and rapid results should consider execution-focused managed services. By embedding expertise and owning the delivery, partners like LogicSource help portfolio companies move beyond strategy to results — faster, more sustainably, and with less internal disruption.

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