Research · McKinsey

Why procurement transformation matters: McKinsey's numbers on the spend nobody defends

TraceIT Research · July 2026 · 6 min read

Indirect spend is the part of your budget nobody defends. Raw materials get costed to the gram because they sit in the product. But spare parts, consumables, tools, supplies, and services, everything else a business buys, typically drift through registers, spreadsheets, and trust. McKinsey's research puts a hard number on what that drift costs, and on what disciplined companies recover when they stop tolerating it.

How big is the prize?

Start with scale: McKinsey notes that external spend typically runs from 30 to 70 percent of a company's total expenditure, depending on the industry, which is why procurement is the first lever pulled in nearly every turnaround.¹ Within that, indirect categories are consistently the least managed and the most recoverable.

The pattern repeats across sectors. Studying 24 industrial companies, McKinsey found tech-enabled programs cut indirect costs by 15 to 20 percent within 12 to 18 months.² In retail, leading players shaved 10 to 15 percent off annual indirect spend, worth 1 to 2 percent in return on sales, and more than a fifteen-fold return on the cost of the sourcing team doing the work.³ One global retail chain took an 11 percent reduction across a $4 billion indirect spend base, banking over $500 million in total cost of ownership savings.⁴

Where the money actually goes: leakage

McKinsey's framework has a name for the quiet destruction of negotiated savings: value leakage. Savings get won in the contract, then lost in execution, through maverick spend outside authorized channels, purchase orders that don't match agreed terms, supplier noncompliance, and missing preauthorization.¹ In public-sector procurement work, McKinsey found that simply enforcing compliance with preferred-supplier contracts preserves 10 to 50 percent of the value that would otherwise leak away.⁵

Notice what every leak in that list has in common: none of them are negotiation failures. They are record-keeping failures. The deal was fine; the trail from purchase to use was not.

The precondition nobody skips: visibility

McKinsey's benchmarking of procurement organizations surfaces the same executive complaint year after year: leaders have a limited view of total spend, too much inaccurate data, and difficulty stitching a true picture together from fragmented systems.⁴ Every successful transformation in their research starts the same way, establishing granular visibility into who spends how much, on what, and where it goes.

What this means for your store room

This is exactly the layer TraceIT was built for. The consultancies' savings numbers come from big-company transformation programs; the mechanism underneath is available to any factory: make every indirect item accountable from goods-in to final use. TraceIT's append-only ledger means quantities only change through recorded transactions, each with a person, a reason, a timestamp, and a cost. Maverick issuance, phantom stock, and unexplained shrinkage stop being possible to hide, because the record can't be edited, only explained. And the three-tier model (warehouse → line → machine) produces the granular consumption picture McKinsey says every transformation begins with, as a by-product of daily work rather than a six-month data project.

You don't need a consulting engagement to stop leakage. You need a record that can't lie.