Daily Archives: January 23, 2012

Managing Indirect Spend: An In-Depth Review, Part I.3

In Parts I.1 and I.2 we began our review of Managing Indirect Spend, a new book by Joe Payne and William (Bill) Dorn of Source One that is the culmination of everything they have learned while doing nothing but Strategic Sourcing, primarily on Indirect Spend, since 1992 — before it was cool. And as SI noted in its last two posts, clocking in at 422 pages, this book is an incredible handbook for anyone who wants to get a handle on indirect spend, which has increased in organizations across the board since outsourcing and right-sizing rose to fame in the 1990s. (And if you think otherwise, download SI’s free eBook white-paper on Spend Visibility: An Implementation Guide, dive into your spend, and see just how much of it is indirect.)

Today we’re going to conclude our review of Part One — The Process, as well as review the last chapter in Part Two, on building stakeholder engagement (which, in the doctor‘s view, is as much process as tool), and discuss implementation, stakeholder engagement, continuous improvement, and, finally, what not to do if the organization wishes to conduct a successful sourcing event.

As Bill and Joe correctly point out, the vast majority of savings opportunities are squandered because there is

  • no implementation plan and
  • no supplier management strategy.

And the implementation is often the biggest challenge. It must be monitored continuously because the historical volumes that analysis and award are often based on do not predict future purchases. Users may start buying new items, more items, or a combination of items that provide new savings opportunities and, more importantly, especially in categories like office supplies or electronics, vendors may substitute other items when the items that were contracted are unavailable (or discontinued) and not give the organization the agreed upon, or even market, rates. So, not only can maverick buyers endanger organizational savings opportunities (when they buy off contract), so can suppliers.

However, monitoring is a challenge because it will require the end users that are the ones using the category to do most of the monitoring — and any appeals about organizational benefits may fall on deaf ears unless a message that resonates with the end users is given. For example, instead of talking savings numbers, which no one believes (because they were never historically achieved), talk jobs. How many jobs might the initiative save? Could it save their job(s)?

And, the organization will have to break down the traditional customer / supplier relationship view that still pervades the organization. Since most innovation will often come from outside the organization, the supplier must be viewed as a collaborator, and not an antagonist only out to get the most money from the organization for the least service possible. Treated with respect, most suppliers will rise to the challenge. Suppliers often have great ideas to reduce energy consumption, downtime, freight costs, and process slowdowns if asked. Plus, they are constantly monitoring the market to identify ways to outperform their competition. Tap into that. It’s a great way to start a continuous improvement initiative.

Of course, all of this will require stakeholder engagement. A stakeholder can be defined as any person, group or department that has influence in a spend category or is influenced directly or indirectly by that spend category. Stakeholders aren’t just end users or category owners. Depending on the project, they are also finance departments, management, shareholders, customers, and even marketing teams. Not only do stakeholders have to buy in for implementation success, but they are a key source of information. They are the often the best source of information on the current supplier, alternate suppliers on the market, the range of spend in the category, similar categories that may be leveraged with the supplier(s), and future requirements. Plus, stakeholders can provide the following value:

  • raw data
  • identification of organizational pain points and a project focus
  • research support and research enhancement
  • detailed business requirements
  • go-to-market support in negotiation and implementation management

Finally, once there is supplier and stakeholder engagement, make sure the organization doesn’t screw up and do any of the following:

  • allow misinformation to spread unchecked
    misinformation can spread like wildfire through an organization and kill a project before it starts (if a rumour that only one supplier can serve organizational needs ot that the goal is to improve efficiency so jobs can be eliminated takes hold, for example, it’s game over)
  • create overly complex or long RFxs
    this will eliminate small suppliers without the resources to complete them or the best suppliers who won’t find the business opportunity worth it when other (potential) customers are more reasonable
  • target the wrong audience / spam suppliers
    make sure the suppliers are pre-qualified as capable of likely meeting organizational needs, otherwise, needs won’t be met and suppliers will be alienated
  • ignore suppliers during the RFx process
    make sure reach-outs are performed before and after the first RFx is sent out to ensure a response
  • let the supplier write the RFx
    this is a great way to ensure no other supplier comes across as capable of meeting organizational needs as the supplier will fill the spec with useless features and functions that only they have
  • over-rely on technology
    nothing can replace the competent, creative guidance of humans
  • take an entitled attitude
    the organization is not entitled to the supplier’s offerings
  • expect a blind bid
    suppliers know that “blind bids are for suckers”; if there is no relationship before the bid, there will be no relationship after
  • forget to train
    if the suppliers can’t use the platform, they won’t bid; if the buyers don’t understand the process, they won’t follow it
  • ask the supplier to put skin in the game
    only desperate suppliers will pay to participate in an RFx, and all the organization will get are higher prices as a result. It’s the one of the stupidest things the doctor ever heard and whoever the moron is who came up with the idea should be ashamed of himself.
  • do everything on your own
    recognize when you need help — and get it!

All in all, Part One of Managing Indirect Spend contains some great advice that every indirect category manager should heed. Our next post will tackle Part II – The Tools. Continue to stay tuned.