Indirect and direct spend are often managed separately in procurement as functional areas, such as sales and human resources. This is true especially in retail businesses, in the case of merchandise and non-merchandise spend. There is simply not enough coordination between the two areas and teams, let alone the sharing of best practices in such areas of overlap such as transactional efficiency, working capital/payment terms, supplier diversity, supplier development, and related areas.
Yet how will direct and indirect linkage look in 2020? Deloitte suggests the following in Charting the course: Why procurement must transform itself by 2020:
Creativity and analytical horsepower will combine to influence the broader organization through new types of procurement-led initiatives to improve the business. For example, consider procurement’s ability to blur the indirect and direct materials in a retail environment with a program that has a back office that buys office products at the same price as the front office — i.e., the retail storefront — using a combination of online catalogs and inventory management programs to create additional leverage for internal consumption.
What will be required to make this type of direct and indirect linkage and alliance possible? Deloitte suggests that:
Such an approach requires thinking outside of the standard procurement transformational box and a keen awareness of how the business operates. Procurement leadership in a manufacturing organization requires similar linkage and alliance. For example, procurement may collaborate with product engineering not just to rationalize specifications based on cost and available suppliers, but more broadly on risk, performance (e.g., reduced warranty claims) and even market changing dynamics, such as pursuing a supplier selection strategy that locks out competitors from key material and part suppliers lower down in the supply chain. These are the types of solutions and processes that procurement needs to tap, or build, to find distinct advantages.
Linkage = advantage. Food for thought as we build procurement for the next decade in our companies.
This post is based in part on content from Charting the course: Why procurement must transform itself by 2020. If you’re interested in learning more about how analysts see the future of procurement and supply chain, register for our upcoming conference, Commodity/PROcurement EDGE.