As per this morning’s post on Common Challenges of Indirect Procurement, often the best way is to start with better technology and better processes, beginning with spend analysis. If the organization can quickly identify which categories will yield sufficient savings to make a sourcing project viable, then it can integrate high-opportunity projects into the strategic sourcing plan, put mid-opportunity projects out to auction, and simply ignore low-opportunity categories as the 20/80 rule generally applies to indirect Procurement as well. If better technology and processes are not possible due to budget or other constraints, sometimes the organization can outsource the categories to a third party. However, if the organization is not good at outsourcing, this could backfire.
So what does your Supply Management organization do to enable success if it can’t get better systems and can’t outsource? As per this recent article over on the HBR Blog Network on how we killed our strategy to save our mission, the best thing it can probably do in this situation is to get out of the way. Just like Question Box ultimately achieved success by shutting down its field operations (and killing its physical product line) to build toolkits to help local community organizations be successful, maybe the best thing Supply Management can do is to deliver a knowledge service that provides the other departments with the knowledge and tools they need to manage their major indirect categories efficiently and effectively. If Supply Management provides each department with the appropriate market information, strategy, contract templates, and other key sourcing tools for managing their high-dollar indirect procurement categories, then Supply Management can enable better results by acting as a consultant to the rest of the organization. It might not be the ideal situation for some Supply Management organizations, but if it improves the bottom line, and Supply Management’s reputation, it’s still a big step forward.
A recent article on How to Leverage Outsourcing over on Efficient Purchasing did a good job of summarizing the common challenges of indirect procurement across sectors and industries. Regardless of what industry your organization is in, chances are it has many of the following challenges, as illustrated by a recent NelsonHall study:
- Effective Interaction with the Business Units
While many executives are satisfied with the caliber of the personnel in their indirect procurement function, many are not satisfied with their ability to manage indirect procurement across the organization and control spend levels. Working with business units requires “softer” skills and the ability to act as “sourcing consultants” to the business.
- Achieving Broader Category Coverage
Indirect procurement is constrained by resources and by the huge range of indirect purchases made by a large organization. As a result, it is virtually impossible for an organization to have category coverage and market knowledge across all areas of indirect spend.
The amount of indirect spend that is e-Sourced and the amount spent on indirect procurement personnel as a proportion of indirect spend under management is low in many organizations.
- Process Improvement and Standardization
There are generally huge issues around inconsistency of sourcing across subisdiaries or georgraphies in an average organization.
- Lack of Time and Resources
As a result, supplier databases and catalogs / punch-outs / product portals are generally out of date.
- Lack of Management Information
Detailed spend analysis is often unavailable for indirect spend.
Many companies, which take their time updating IT for direct spend, take even longer to update systems for indirect spend.
Now, the authors would have you overcome these shortfalls by outsourcing, but the reality is that many are overcome by implementing better technology and better processes, starting with spend analysis. If an organization can quickly identify which categories will yield sufficient savings to make a sourcing project viable, then it can integrate high-opportunity projects into the strategic sourcing plan, put mid-opportunity projects out to auction, and simply ignore low-opportunity categories as the 20/80 rule generally applies to indirect Procurement as well. Of course, if the department can’t get better systems, better processes, and more / better personnel, then it may have to consider outsourcing for results.