BPO Thought Process

BPO Thought Process

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

How to reduce costs on indirect spend through spot buying

Category : Procurement
Spot buying is still a relatively new topic for many businesses despite contributing to almost half of all indirect spend. Done right, I’ve seen organizations use spot buying to reduce purchasing costs by 15% and increase productivity by more than 50%, proving that the positive aspects definitely outweigh the initial effort in taking control.
 
Let’s start with a definition. A spot buy (tactical purchase) is a purchase that is not planned strategically. It can be an entirely unplanned purchase or one that, due to circumstances such as special project work, is planned but still not strategic in nature.
 
Understandably, most organizations avoid the subject of tactical purchasing of indirect spend. It is not seen as a strategic advantage and the time taken to find a reduced price is often considered not justifiable given the relatively low level of spend. However, this is changing as organizations look at boosting cost savings and new technology enables a leaner process. 
 
Choosing the right tool for managing tactical purchases is of the utmost importance. In order to circumvent the difficulties associated with managing the spot buying process, it’s best to implement a high quality tool that does most of the legwork for you as well as your procurement department and your users. The user experience is essential in ensuring adoption of a spot-buying tool. This might seem obvious, but based on research by Capgemini’s IBX Business Network on user reference groups, user surveys and usability testing, many organizations tend to forget casual buyers, focusing instead on professional users.
 
Today, casual buyers expect the same level of user-friendliness and functionality from technologies within their organization as they are exposed to in their private lives. Ease-of-use is paramount because it leads to high user adoption and reduces training and support needs. The spot-buying tool should provide casual users an easy to fill-in request form that prevents ambiguous orders to ensure an easy and efficient purchasing experience. 
 
Casual users expect to have a quick response from the procurement team if they cannot find the product or service they require. Users also want the ability to track the progress of their requests and have the option to negotiate a final decision with the purchasing department on the selection of the final product or service. To ensure user satisfaction and accuracy of information, the system should provide a direct communication channel between the end user and the dedicated procurement team. 
 
For professional buyers, leveraging competitive prices is of course a key benefit of adopting a spot-buying tool. To ensure that the best pricing options are available to professional buyers, the tool should provide RFX and real-time auction capabilities to achieve competition-based prices through bid-based negotiations and reverse auctions with contracted suppliers.
 
Every spot-buying tool should not only optimize the buying process, but also eliminate the need for making a tactical purchase wherever possible. The tool should be able to identify and prevent repetitive requisitions for the same product or service and requests where a product or service is offered within an existing catalog. The user interface should guide casual users through predefined value thresholds and a list of preferred suppliers. Where an existing contracted supplier and product or service is identified by the system, contract rates should be enforced by the tool. Finally, the distribution process should be fully automated for maximum efficiency.
 
However, requisitions that are above threshold value still need to be managed by the tactical purchasing team, often in the form of a shared services center. Team managers will want an informative overview of the workload across their teams in order to delegate accordingly. It is also important for them to be able to identify bottlenecks and performance issues before SLAs are compromised. Therefore the spot buying tool needs to have strong documentation features for reporting and auditing. 
 
In the end, finding and implementing the right procurement tool is the key to taking control of the spot buying process. Although it might not be the procurement department’s favorite topic, spot buying should be taken seriously in order to ensure your business is realizing all possible cost savings within their procurement function. Reducing the cost of what amounts to close to half of all indirect spend can mean significant cost savings for your organization.
 

About the author

Regine Böhm-Gams

Leave a comment

Your email address will not be published. Required fields are marked *.