At a recent ProcureCon indirect conference, I framed the importance of addressing indirect spend based on the challenges that many procurement organizations are having when it comes to the ability to impact direct materials spend outcomes (for more on the direct procurement challenge see Re-inventing Direct Procurement). Simply put, since most procurement organizations are failing to influence and manage the intersections of direct procurement with supply chain and the rest of the business, we must take better control of indirect spend.
But what are the best ways of going about seizing control of indirect procurement activities? I observe three general categories of activity. These are:
- “Just do it – yesterday”
- “Plan and act"
- “Get smart and explore”
“Just do it” activities are those that are just the ante to doing indirect well. These efforts include:
- Item level spend analysis (yes, it matters; and it’s critical to get item-level invoice details from suppliers if internal systems do not support line level visibility
- Strategic sourcing & spend portfolio strategy (e.g., MRO)
- eProcurement (Ariba, Coupa, SAP, Oracle, etc.)
- E-invoicing (true e-invoicing, not just enabling suppliers to upload or re-key invoices into supplier portals)
- Supplier on-boarding, enablement and visibility
- Contingent spend / vendor management system (VMS) implementation
- Supplier diversity
“Plan and act” areas are those that procurement organizations should already be engaged with around indirect spend, but may still be in the early stages of making the right investments. These activities include:
- Market / category intelligence
- Supplier development / partnering
- Supplier risk management
- Services procurement (beyond the VMS) including complex categories: marketing, print, legal, consultancy, etc.
“Get smart and explore” areas are those that procurement organizations should start investigating as it pertains to indirect procurement – and ideally should be, at the least, in the early stages of program roll-out. These areas include:
- Advanced sourcing – this includes working with suppliers to get more creative with RFP responses and evaluating responses against multiple price and non-price criteria
- The financial supply chain (which include discounting, dynamic discounting, working capital management, third-party receivables financing, etc.)
Where is your organization on your indirect spend journey? Please don’t hesitate to reach out to Spend Matters if you’d like to discuss any of these areas. We’d be happy to share our perspective on these topics and point you in the right direction of both our free and subscription research covering these areas in the context of indirect procurement investment.
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