Managing Indirect Spend: An In-Depth Review, Part I.1

Late last year, Joe Payne and William (Bill) Dorn of Source One released their first book on Managing Indirect Spend (Amazon) which is a culmination of everything they have learned while doing nothing but Strategic Sourcing since 1992 — before it was cool. Clocking in at 422 pages, this is an incredible resource for anyone who wants to get a handle on indirect spend, which has increased significantly since outsourcing and right-sizing rose to fame in the 1990s.

This book, which should be on the desk of everyone looking to get a handle on indirect spend, is loaded with so much information that there’s no way SI could do it justice in just a post or two — so it’s not going to even try. Just like the book is broken down into four parts, our review, over the next few weeks, will be broken down into four parts — and then into sub-parts where there is just too much to comment in with a single post.

Today we’re going to review the first part of Part One – The Process, and, specifically, the chapters that cover the first three parts of their six part process, namely:

  • Data Collection & Spend Analysis
  • Research
  • The RFx Process

We’re all familiar with the basic process, and if you are a regular reader who has downloaded the free e-book, no registration required, Spend Visibility: An Implementation Guide, then you are very familiar with the data collection and spend analysis process. However, the chapter still makes some good points that need to be reiterated, particularly in regards to building sponsorship and understanding the category. Lack of sponsorship will kill your project faster than a minnow can swim a dipper, and to get it you need the end user’s support as well as senior management. As Joe and Bill state, this will require sitting down with the users and letting them know that they are not being singled out by your spend project, that your project’s success depends on them and is their success as well, and that your project is designed to tie to their objectives (as it should be). In addition, the following is a great checklist of information you will have to review with your users before starting a serious sourcing project on the category:

  • business relationship (with current suppliers)
  • product or service utilization specifics
  • location impact
  • financial implications
  • contractual obligations
  • reports, requirements and actual utilization
  • service requirements and expectations
  • supplier ranking

Joe and Bill also provide some great advice on how to handle the three different types of responses that you will encounter when requesting data from incumbent suppliers — acceptance, avoidance, and pushback — and questions to consider during supplier interviews.

Moving on to the research phase, they provide a breakdown of the eight (8) elements that need to be researched during any sourcing initiative (that you want to be lucky) as well as some great tips for collecting market intelligence through the RFI process. While modern tools, including Source One’s own WhyAbe, make the creation of RFIs drop-dead simple, getting responses and, in particular, the responses you want can be challenging for a variety of reasons. Suppliers might not think you’re serious, might not want to expose what they consider to be sensitive data, or might not be comfortable with the tool. A carefully constructed process has to be put in place, followed, and sometimes augmented by other approaches for the research phase to be truly successful. Joe and Bill lay out their advice, garnered from almost twenty years of experience dedicated to sourcing projects, in detail and offer a blueprint for your success.

Then they jump into the full RFX process, which might consist of an RFP and / or an RFQ/RFB and dive into the typical elements of a good RFP and RFQ as well as the evaluation process that should be followed and the response that should be provided if you want your suppliers to participate in the process again. One point that they make that most other resources miss is the need to include disclosure and liability sections in the RFx document. This is critically important when inviting new, unknown, suppliers to an open event. If these suppliers aren’t awarded the business, they may sue you on the premise that the invitation for bid was in fact an invitation to do business and that the RFx constituted an MOU to be replaced by a future PO or contract once the information was provided. Slimy and shady to say the least, but this has happened. They also discuss the reverse auction process and when it is preferable to an RFX. Finally, they end their discussion of the first half of the sourcing process with a discussion around the need for flexibility and creativity in the sourcing process, a discussion that’s often overlooked. Significant savings are never found by doing the same-old, same-old or just applying one or two sourcing technologies. They are found when the parties come to the table, broaden their horizons, and look for new, creative, and innovative ways to meet organizational needs. And, as Bill and Joe state, suppliers are often much more motivated and engaged when buyers take an alternative approach. So be flexible — and stay tuned. Part I.2 is coming!