Top Tips: Indirect Procurement/Sourcing as a Spend Management Core Component Strategy (Part 3)

Please click here for Part 1 and Part 2 of this post.

When it comes to making indirect procurement and sourcing the core component of an overall Spend Management strategy, it's absolutely essential to consider what makes indirect procurement so different than other areas of spend. One of the reasons indirect procurement remains such a back-burner item in certain organizations is that procurement and finance leadership have not identified the right tools, capabilities and processes specific to the overall indirect umbrella as well as specific categories that fall under it. Of all areas that are important to explore in this regard, technology is probably most fundamental. But don't think for a component that going out and licensing SAP SRM, Oracle iProcurement, Ariba Buyer or any other rented (i.e., cloud/SaaS) tool will solve all your challenges here. No single tool will. However, fundamental P2P enablement for indirect is important for basic categories.

Any P2P system worth its salt should enable a procurement organization to better control spending by managing what information is presented to buyers (i.e., suppliers, available items/services), how buyers can act (e.g., unilaterally or through an approval process), the context of a particular purchase (e.g., impact against budget) and how an order is fulfilled, checked and ultimately paid for. But that's just the ante for basic indirect spend items (e.g., office products, IT equipment, catalog MRO). For categories such as telecom, legal and marketing spend, it becomes critical to consider other highly specific capabilities.

For telecom, these might include telecom expense management (TEM) solutions that track contracts, usage, and compliance to better manage carriers, billing accuracy, internal requirements. And for legal and marketing spend, organizations also need to consider category solutions that track additional category-specific nuances. This may include not only understanding the cost associated with a particular purchase order, requisition or measure (e.g., hourly bill rate) but the cost to achieve a specific outcome (e.g., "this number of click-throughs, this number of successful patent filings at a fixed cost").

In a recent Spend Matters Compass series report, Getting the Most From Analytics and Benchmarking, we note that detailed "analysis in complex services categories (like legal) can also yield fascinating insights that can quickly lead to changes in internal buying behavior (and possibly even happier stakeholders). For a certain type of litigation or transactional work, for example, an organization may find that an analysis of timesheet and billing data of a law firm shows that higher-cost partners and more experienced associates may actually be more efficient than teams comprised primarily of younger associates who need significant paralegal assistance."

Stay tuned as we continue to investigate what makes indirect spend different and how organizations can achieve breakthrough results compared to past performances by taking into account the most important considerations in the area.

Jason Busch

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