Common Challenges of Indirect Procurement

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.
  • Efficiency
    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    As a result, supplier databases and catalogs / punch-outs / product portals are generally out of date.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.
  • Out-dated IT
    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.