Top Tips: Indirect Procurement/Sourcing as a Spend Management Core Strategy Component (Part 1)
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Yet I’d argue that even as Paul succinctly lays out the argument for focusing on how more companies are focusing on indirect spend at the start of his column, the key questions to ask and areas to probe are not “how” but “why.” If you can answer the “why” when it comes to focusing and redirecting energy to indirect categories today from MRO to IT equipment to marketing spend to office supplies to contingent labor, you’ll get at the most important point of all when it comes to indirect. And that’s namely, in more advanced companies today, indirect procurement has become procurement — or at least 70% of the cost reduction focus today).
Paul is only partially correct when he talks about the solution of going after indirect. No doubt, he’s spot on in nothing “the difficulty of measuring value — of the service and of the supplier providing it.” But the course of action he suggests only captures one element of successful indirect pursuits. To wit, “the solution is to follow the same approach steel and other direct-materials buyers take: Know the market.” Knowing the market in metals, energy, plastics/resins, electronic components and other direct categories is key. But when it comes to indirect spend, there are a bunch of additional nuances that can make category success much different than direct. In the coming posts in this series, we’ll focus on what makes indirect spend different, looking at technology requirements, category skills/focus, client (internal) engagement, benchmarking, and supplier management.
We’ll also consider how an overall strategy to pursue indirect should play as differently as perhaps, the most important portfolio component of procurement today. Hint: there is nothing “indirect” about the impact indirect spend should be having on your bottom line relative to direct materials, which are likely becoming more and more difficult to control, cost-wise.