Purchasing Transformation

A few weeks ago I listened in on a webinar where The Hackett Group explored some of their recent research relating to lost spend (Hackett: By Controlling Project-Based Indirect Spending Companies Can Net Significant Savings ). Many purchasing focused news feeds have already picked up the press release and just a few days ago both Purchasing.com  and Spend Matters added their comments on the problems of project based spend.

Jason Busch of Spend Matters neatly outlined some practical ways of dealing with this type of spend based on hand on experience:

First, if project-based spending categories fall outside of a core area of internal category knowledge, bring in the consultants. In fact, this is a great place to leverage either large-firm or boutique experts to achieve savings.

Second, focus on helping procurement serve as a bridge connecting all of the different stakeholders in the project — internal design engineers, third-party architectural/engineering/project management firms, primes, etc.

And third, offer to aggregate and take control of raw material and commodity spend on behalf of both internal and outside stakeholders with various management roles in the project.

I would say that this is a typical case for exploring the possibilities of Managed Sourcing since not all of the categories considered in the research is “just” project based. Take for an example Marketing Spend related to Trade Shows and Events; most companies that indulge in this type of activities do it more than once a year – and they typically want the same message to be delivered, so even if there are geographic challenges to be dealt with, the core suppliers of the event are often one and the same (or belonging to a network).

When applying the consultant/managed sourcing approach it is important to ensure that the assignment also includes implementing the contract and supplier follow-up. Often consulting assignments end with the consultant just delivering the contract to be signed – while this may be enough in some cases, for much IM&S spend the real savings are reaped after contract implementation and unless you have a strong e-procurement program in place with strict policies the savings may not materialize if the contract is not monitored and promoted and the supplier relationship not developed over time.

If the purchasing function is overloaded or lack the proper category skills in the sourcing phases, chances are that they will also be lagging when it comes to implementing and monitoring the contract. So if you’re looking into tackling these lost categories – make sure that your partners support you as deep into your purchasing process as necessary.

This entry was posted on May 8, 2009 at 10:11 am and is filed under Business, Governance, Negotiation, Sourcing, Strategy, eprocurement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.