Spend Matters welcomes this guest post from Brian Miller, vice president of services at Proactis.
“Dark” procurement, a new label for a well-known challenge in the discipline, is elevating concerns over purchasing waste and threatening efficient, optimized procurement. This is especially apparent in complex spend categories, particularly business services. Characterized by a lack of procurement awareness and process transparency in these categories, “dark” purchases leave organizations exposed to inefficiencies, greater costs and more risks. As resources shrink, skilled teams age-out and organizations become increasingly decentralized, the trend away from tackling these categories increases. Turning that tide though is easier than teams might think, especially when internal knowledge and skills are complemented with the right technology framework and associated expertise.
Taming Complex Categories: The Time is Now
It’s not surprising that even the most seasoned procurement teams struggle to cover these complex categories with the right expertise. In many cases, these categories have imprecise or changing specifications and requirements. They are frequently areas where true 'apple- to apple-' comparisons are difficult. In some instances, they may be emotive areas for business units, especially when deemed “strategic” to the organization. Some of the most common complex categories are management consulting services, information technology, capital equipment, marketing and legal services, contingent labor, facilitates management and maintenance, repair, and operations (MRO).
Stepping up to tackle these tough categories – and gain the control necessary for truly effective procurement – isn’t simply a nice-to-have. With indirect spending accounting for as much as 25 percent of an organization’s revenue – and these categories widely left untouched by sourcing strategies to lower costs – the opportunity to capture big savings is compelling.
Shedding Light on Dark Purchasing with E-Sourcing
When e-sourcing first came on the scene, it was largely designed to deliver the best value and the lowest possible cost for the goods and services being purchased. The reality today is that e-sourcing can provide a valuable way to get information and insights from the supply chain by streamlining ways to gauge the marketplace and get to know vendors better. Getting the most from e-sourcing events requires investing more deeply in the process:
- Engage stakeholders at the earliest possible point to get and incorporate their perspectives, knowledge and expectations into the event. Be sure that you bring to the conversation ways to demonstrate your own expertise about the category, such as insight into cost drivers, hidden costs, etc.
- Collaborate with suppliers. Share pertinent information to vendors so they can familiarize themselves with your company, specifications, expectations and goals. Identify and introduce potential new vendors to the mix. When appropriate, make adjustments to projects based on feedback from the supplier community.
- Measure more than cost savings. Evaluate each vendor’s ability to understand the end user and anticipate their needs.
In one instance, a large grocery chain found itself ready to change how it sourced third-party administration services, general liability, and workers’ compensation. Historically, the company only went out to bid every two years, as the process took more than five months and only yielded two or three viable vendors. With a strategic, external partner, the company ended up saving more than $1.7 million and also realized several operational benefits, including reducing the process to just six weeks and expanding the provider base from two to three vendors to 11 vendor participants.
Optimize Complex Category Sourcing with Best-in-Class Technology and Expertise
It simply isn’t realistic to expect a procurement organization to have domain expertise in every complex category or have the resources to manage sourcing events in large volumes. Choosing a partner who can offer both best-in-class optimization technology and enhance the team’s resources may in fact be the most effective and efficient way to wrestle with the challenges of “dark” purchasing.
An experienced partner will work with your team and add vital capacity and tools to design a fool-proof sourcing project by sharing the answers to critical questions, including:
- What is the goal of the project?
- What is the most effective strategy, given the category and goals of the event?
- What current market conditions need to be accounted for?
- What questions should be included in the RFI based on supplier risk, category specific details and specifications, and customer requirements?
- What analysis will need to be done post-event? What data would be most useful and in what format?
- How to create a highly repeatable and transparent process that delivers results.
By investing in a sourcing approach that makes it easy to effectively weigh and optimize various purchasing scenarios, the entire procurement process moves simply from just being about price negotiation to harvesting a wealth of information that results in the best overall value for the organization. Each and every decision procurement makes can bring exponential growth that moves the business forward. Success lies in understanding the possibilities that are out there, the positive and negative outcomes of each, and which steps the team should take before, during and after an event to get the company to where it wants to be.
Step into the Light
It’s true that sourcing complex categories takes more upfront time, but the payback potential is too large to ignore. The call to end “dark” purchasing practices in these categories gives your procurement organization a way to shine light into every corner of your company and put a spotlight on the value that your work delivers across the entire enterprise.