In recent years, one trend I have noticed is that more and more organizations are finally realizing that tactical sourcing (spot buying) in indirect spend, represents an area of untapped savings.
Back in 2013 the Hackett group estimated: “42% of indirect spend is tactical in nature”. From data gathered from our customers, we found that 41% of customers’ indirect spend volume, managed via IBX Purchase-to-Pay, is tactical spend. This represents 13% of the line items purchased. We also discovered that increasingly, customers are managing their indirect tactical spend as an integrated process.
Five years ago it was still common to manage requisitions in a simple, one-size-fits-all form, which was managed by the purchasing department in an off-line process to find the best supplier for the requisition. Now, more companies are using an integrated process; from capturing the end-user needs, to the online bidding and quoting process, including collaborative evaluation; ending with a quote in the requester’s shopping cart.
Still today, tactical spend is largely an untouched area, despite the big savings potential. Sourcing organizations tend to focus their project portfolio on strategic projects and often do not have the bandwidth or desire to pay attention to the lower-end spend. Operational procurement organizations have been measured on productivity, automation levels and contract compliance. Hidden in the chasm between operational and strategic lies tactical spend – like an undiscovered treasure.
Another recent trend I have noticed is that purchasing organizations are shifting their focus away from policing compliance. Achieving compliance is still important, but instead of policing the organization to avoid maverick buying, leading purchasing organizations actually work with the end-users’ demands in mind. The reason is that this approach results in higher value for the organization as a whole. In my experience, organizations that invest effort in understanding their stakeholders’ needs and making the process smooth from the end-user perspective, achieve results that are far more positive. KPIs measuring contract compliance rise hand in hand with internal customer survey ratings.
These days, to achieve better service for the business stakeholders, many purchasing organizations are implementing tactical buying desks. These are not just low-cost employees executing simple step-by-step procedures. These centers of excellence have the category and market intelligence needed to identify and prioritize the right opportunities and achieve the desired savings results. By having access to multiple eSourcing options (like RFx and online bidding) the tactical buying desk can always choose the right approach to achieve a competitive offer within the requested timeframe. Low-value requisitions are triaged out and managed with a simple direct order.
In summary, taking the above trends into account, my recommendations for indirect spend tactical sourcing processes are as follows:
Simplify and Automate
Operational procurement processes should be simplified and automated by up to 60% of spend volume (corresponding to approx. 90% of transactions) using well-known employee self-service procurement through online catalogs and eForms. The remaining 40% of indirect spend should be managed by a tactical buying desk. The tactical buying desk should be center-led, but parts may be outsourced and parts in-house. Considering supply requirements and supplier markets it may be best to have a few centers with local expertise, rather than one central global unit.
Drive an Efficient Request Process
It is important to have an efficient requisition entry process to avoid ambiguous requests that drain efficiency, resulting in long lead times and which demotivate the stakeholders. Category specific forms and an integrated messaging feature really help to clarify the requirements quickly and make sure the conversation is traceable.
Manage the Workload
The workload of the tactical buying center needs to be actively managed (there are tools that help with this) and a triage process needs to be applied. Low dollar purchase requisitions received by the buying desk should not be actively sourced, but spending between $10,000 and $150,000 can yield significant savings (5-20%).
I welcome your comments and questions below. More about optimized tactical buying can be found here: “Taking control of tactical purchasing”.