It’s a Fallacy that Procurement Manages ALL Spend

In very few organizations does procurement have total control of spend. The guy that plays golf with the supplier is typically not in procurement.

Of course, procurement can manage major spend categories – IT procurement, BPO, logistics, etc., but the vast majority of spend at companies that make things – direct expenditures on ingredients, commodities, raw materials, components, etc., is managed by the division directly.

Who is best to understand the supply markets for critical supplies and all the compliance issues and market conditions? Perhaps there is a centralized group in procurement that provides market intelligence, but the end users are the ones that have 100% influence.

Lets say you buy pineapple juice concentrate as part of your ingredients. Thailand is the largest producer of pineapple juice concentrate in the world. Recently, problems like the US anti-dumping duty on Thai pineapple products, unfavorable climatic conditions, the high incidence of diseases and pests, high production costs for raw material and relatively low yields have affected the trade. Who best to understand these dynamic issues facing this one ingredient alone?

Or who is best to understand the compliance issues around a complex bill of materials? For example, you don’t want to buy filters if there are asbestos in those filters and they are made in the states. Now that you are in the physical supply chain and you own the inventory, there is substantial risks that are undertaken in the chain of title.

Take this one step further, and how do you manage the connected commerce world for direct spend? We know EDI and EDI integrators have been doing it for decades – shout out to companies like GXS/OpenText, Sterling, etc. But as my colleague Pierre Mitchell knows much more deeply than myself direct spend enablement is a different beast. It requires deep knowledge and skills to set up and orchestrate a global supply network comprised of various partners who collaborate in complex high-stakes processes.

Understanding this world of trade credit, trade finance, commodity finance, etc., related to direct spend is an area that few technology vendors fully get to as their automation focuses on the indirect side.

p.s. to receive TFM’s weekly digest every Monday morning, sign up here

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.