2011 Prediction: Procurement Organizations Refocus Efforts on Complex Categories as a Core Strategy

As anyone who has been through multiple procurement transformation and strategic sourcing exercises is fully aware, the point of diminishing returns from tackling traditional categories (e.g., office products, facility MRO, IT hardware, basic direct spend, etc.) begins to occur somewhere between the second and third sourcing initiative for the same category. Granted, there's usually still future savings to be found, often through compliance, demand management, etc. But it's impractical to think that an organization can continue to achieve double-digit -- or even high single digit -- savings year in and year out across the traditional procurement cost reduction repertoire.

Up until this point in time, there were good reasons why many procurement organizations limited themselves to a usually typical market basket of spend areas. Because of limitations in category-specific spend visibility, challenges of broader category and supplier lifecycle management, stakeholder management issues, and a host of other reasons, few organizations have successfully pursued what I'm terming "complex categories" as part of a core cost reduction/cost management strategy.

Complex categories are those such as marketing, legal, contingent labor, professional services, telecom, travel and other areas where the nuances and complexities of each area require unique capabilities and domain knowledge to effect material and sustainable savings opportunities. I also include categories such as packaging and packaging engineering in the "complex" bucket when a procurement organization begins to add material, design and engineering specifications into the sourcing and supplier management equation.

There are a number of reasons I think the time is right for procurement organizations to make complex categories a core focus. From proven and improved technology that addresses the specification, sourcing, compliance and lifecycle management components of complex spend areas to the greater acceptance of procurement by the broader organization, having emerged as a more important and influential group, the reasons abound. Stay tuned as we offer a general all-purpose recipe for going after complex categories later this week.

- Jason Busch