The Revolution of Purchasing: Part II

Yesterday, in Part I, we noted that even though Purchasing has been evolving in the leading Supply Management organizations, thanks largely in part to some great technology platforms outlined by Lisa Nyce of Source One Management Services in her guest post three years ago on The Evolution of Purchasing, it has been an evolution to more strategic purchasing on select categories, and not a widespread revolution.

And this is problematic in SI’s view because we’ll never have a true purchasing revolution until all Spend Under Management is truly Managed Spend. Right now, many Procurement organizations have the fallacy that just because the spend goes through the e-Pro/P2P/I2P system, that doesn’t mean it’s managed. It just means it’s tracked and available for analysis. And, more importantly, the spend strategy and decision has to be enforced. Negotiation a contract with Supplier X for 10% below current prices is useless if everyone keeps buying from Supplier Y. Deciding to go three bids and a buy is useless if the buy is from the highest price / lowest book value supplier just because the buyer knows they’ll deliver. Directing a user to a catalog with preferred items is not spend under management if the user can just punch-out to Amazon and buy from an overpriced third party because they want a non-standard product. And so on.

For all spend to be managed spend, at least things have to happen:

  1. All spend has to be categorized.
    Uncategorized spend is unmanaged spend. It gets shoved into the tail spend, and is left for anyone with budget authority to manage as they see fit. Catalog buy. Spot buy. Non-preferred vendor spend. Big barkup store down the street spend. Etc. If it gets into a category, and that category is a managed one, there’s a chance it will be managed.
  2. All categories have to properly purchased.

    Every category has to have an associated bucket. Strategic. Non-strategic 3-bids and a buy due to high spend volume. Catalog. Just categorizing is not good enough — categories must be mapped to preferred strategies. And bought according to those strategies.

  3. All purchasing decisions have to be enforced by a platform.

    Once a purchasing strategy is selected for a category, it must be executed. And once an award or decision has been made, it must be enforced. The platform should not permit a strategic category purchase to go through punch-out catalogs or a catalog buy for an on-contract item to be made with an off-contract supplier.

And, since there just isn’t enough manpower for a Procurement department to tackle 100% of Spend Under Management (as the average organization struggles to tackle 1/3 of strategic spend each year), the platform must support automation of tactical 3-bids and a buy, catalog buys, inventory re-orders, etc. Modern cognitive solutions, with enough rules, data, and market intelligence can buy low-dollar, non-strategic categories as good, if not better, than overworked purchasing professionals. Automate 3-bids and a buy. Automate catalog purchases with on-contract suppliers. Automate re-orders for on contract product and services when inventory gets low. Automate that where your strategic insight provides little value, and then increase the percentage of strategic spend that gets strategically sourced every year and you will have a real purchasing revolution.