Middle Market Procurement: Got Spend?

- June 6, 2014 6:25 AM
Categories: Friday Rant, Spend Management | Tags:

As someone who has entirely sworn off dairy – if you do it, I can promise that your allergies will improve within weeks, especially in the spring – I still laugh at those “Got Milk?” advertisements that have been around forever. Of course, every house has got milk, even ours, where a small carton will last weeks for babysitters, guests, and others who want to put some in their coffee, dunk an occasional cookie in it, or G-d forbid, actually drink a glass by itself. If reducing or eliminating milk for health reasons is not enough, for the sake of encouraging free trade alone – and thumbing your nose at US special interests and protectionist policy that keep prices artificially high – ditch the white stuff here.

But I digress. Just as many households have still got milk, so too does every middle market organization (and small business for that matter) “got spend.” But in most cases they don’t have an organized procurement or sourcing function that looks at their purchases in the same way as larger companies. They lack not only controls, policy, and processes, but something even larger – a charter to align procurement with overall business objectives.

Middle market procurement practices – if you can call them that – can even be disruptive. MetalMiner recently covered the story of a small business, a “US bedding manufacturer, Sleepmaster of Syracuse, NY, that took delivery of nearly $30,000 worth of innerspring coil products from a Malaysian original equipment manufacturer and still has not paid the importer or the OEM. Delivery was taken in early April.”

As MetalMiner’s Jeff Yoders wrote, “Duties and tariffs not withstanding, non-payment wreaks financial havoc on small exporters, particularly those in the mattress innerspring industry whose livelihoods depend upon prompt payment.” Consider the court of social media, where delayed or non-payment comes up in credit checks and D&B ratings, and those doing a Google search on a company might decide to look elsewhere based on what they find.

But more important than a failure to create alignment with the business – and in the above example, practicing policy that will backfire and damage a business reputation just as extending payment terms to diverse suppliers will among larger companies – is how procurement solutions providers, especially software companies, still find it challenging to penetrate this market.

Could the problem be that that they’re not thinking about it correctly? In other words, are they going about getting products and services into the hands of those who need it most in a manner that simply won’t yield consistent results, ever?

I think so. And I think the successful model for targeting and improving middle market procurement with third-party solutions will be one that addresses pain points directly but makes money in a different manner, potentially by transferring or masking costs in the SG&A line of suppliers or distributions.

Think about it. Imagine a world where a middle market organization does the following:

  • Gets an integrated procurement/spend management application spanning eProcurement (MRO, IT, office products, small parcel, etc.) and travel and expense (including travel booking) for free, thanks to changing business models by current vendors it works with. Take the following scenario: an industrial distributor OEMs and white labels a software solution from a third-party software provider to expand its reach within accounts and drive targeted outcomes, such as improving private/white label sales vs. branded products. Such a “free” solution for middle market companies would become a spend cockpit for controlling and channeling the bulk of non-direct buying activates through a single intermediary.
  • Uses future functionality on Amazon to build workflow, process, and controls into the online purchasing environment (and even taps Amazon to manage private semi-private/partitioned catalogs from suppliers) without having to pay an additional licensing fee from a software perspective.
  • Works with buying groups or distributors that are arms of larger companies that in effect become an outsourced purchasing solution (including software, demand management, etc.) that make their money by charging suppliers in a vendor-neutral manner much like the “neutral” MSPs models within the contingent staffing market (whose parent companies still maintain staffing arms themselves in most cases).

I have a sneaking suspicion that the future of middle market procurement solutions will be dominated by models that do not look much like today’s software and consulting/services delivery and sales models. It will be the daring (and smart) intermediaries that figure out how to expand their wallet share through bundling (or passing through to suppliers) what larger organizations have historically paid for that will end up ruling the middle market spend day.

Got milk, or rather, spend? Probably. Got savings potential? Absolutely.

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