Is Spend Management Right For the Middle Market?

In the past few months, I’ve had numerous conversations with middle market manufacturers and consultants in an attempt to figure out if Spend Management is right for smaller organizations. Clearly, companies of all sizes can benefit from better sourcing and procurement, among other areas. But Spend Management is a broader concept, and going into this analysis, it was not entirely clear to me that bringing a holistic perspective to managing spend made sense for smaller organizations. Unfortunately, I still don’t have the answer, other than to say it depends on circumstance and industry. But before providing a bit more analysis, let’s begin the discussion by defining the middle market. To me, it’s that nebulous area of companies somewhere between $25 million and $2 billion in revenue. Granted, this is a huge range, but as one social critic once remarked when referring to pornography, “I know it when I see it”. The middle market is the same way. Middle market companies face a range of challenges which can make the concept of Spend Management difficult. We’ll hit on the most critical ones below, but for a broader overview, check out Supply and Demand Chain Executive’s piece on the subject. In terms of learning more about the middle market from analysts, there’s not too much research out there. Forrester’s Andrew Bartels often refers to the “glass ceiling” of procurement applications and their failure to penetrate smaller organizations. AMR’s quantitative market researchconfirms Bartels research as well. But in general, it’s a topic which is rarely explored to the level it should be. We’ll try and change this here at Spend Matters by exploring the topic periodically. Now, onto our perspective! To begin, middle market companies often lack a team of dedicated Spend Management resources. Sure, there might be a small purchasing team -– and maybe even someone dedicated to strategic sourcing -– but rarely do middle market organizations have a dedicated, senior team focused on addressing broader spend management issues (total cost management, supplier performance management, global sourcing, etc.). This can make embracing the total concept of Spend Management difficult, though certainly a goal worth pursuing. In addition, middle market companies often focus on different purchasing objectives than larger companies, many of which run counter to Spend Management thinking. For example, it’s not uncommon to see a middle market company give away too much on a negotiation for better payment terms (to maximize cash flow), rather than negotiate a lower purchase price, which would have been the right total cost strategy. In the past month, I’ve seen first hand how a middle market organization was excited about how it was able to negotiate 180 day payment terms for their fasteners spend. But clearly, in getting these terms, they gave up significant leverage in driving down their purchase cost for a category where it’s not uncommon to see 30-50% savings via competitive bid. In addition, middle market companies often don’t have the same buying clout as larger organizations, nor do they have consistency of volume. This can make it harder to not only negotiate the best terms with suppliers, but to develop an ongoing collaborative relationship as a preferred buying organization. The regional focus of many middle market organizations can also make it difficult to break out of a regional purchasing mindset. And some middle market organizations don’t have the same degree of purchasing professionalism and savvy as larger organizations. There also tends to be less of knowledge around enabling technologies and Spend Management strategies and processes. But there’s good news as well. Middle market companies tend to have more centralized decision making abilities and can move more quickly than larger organizations. They’re also often great candidates for category-based Spend Management BPO (especially on the indirect side). Where can middle market companies turn to for tools geared towards their needs? I can’t vouch for the quality of their solutions because I’ve not dug into their products or done reference checks, but I really like the way Ketera bundles visibility, procurement, and contract management for the middle market. Whether they become the of Spend Management remains to be seen, however. You can read about their middle-market bundles and pricing here. There’s also been a recent crop of new consultancies than have sprung up to address the Spend Management needs of the middle market. I’ll be interviewing Transpacaccess’ Sean Harley and Aptium Global’s Stuart Burns in the coming weeks to get their perspectives on the topic. Throughout 2005, we promise to give the middle market the attention it deserves! -Jason Busch

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