Friday, 13 Jun 2014
Time To Unlock Savings On Indirects.
Category managementCost and Cash Management
In this guest post, Procurement Leaders invites Xchanging VP Jason Evans to lay down the gauntlet and challenge procurement to take the next step in making savings on indirect spend.
It's time to get direct about indirect: businesses are leaving millions on the table. Indirect spend can represent up to 20-30% of revenues and you can expect to save 10-30% on spend through 'excellent' procurement, but this requires the right mix of technology, people and processes.
In order to make the most of this opportunity, teams need to step up in these areas:
The focus with indirect procurement is often on procurement technology. Yet, there's another, deeper level of specialized category tools that can provide an even stronger level of savings and quality service opportunities. Companies must tap those specialized tools to achieve maximum results, and use them through either third party or direct licensing.
Making technology work toward your procurement goals means setting some priorities:
- Create a team and process to explore available technology. Big strides have been made recently by vendors in spend analytics, e-sourcing, contract management software, sourcing document workflow (e-signature and online approval), supplier management (interactive SLA/scorecard dashboards), spot-buy and tail-end spend management (automation/reverse auction), savings tracking, budget planning and more.
- Technology can have a big impact. Collectively, the above tools allow for greater efficiency, improved processes, better visibility, detailed audit, and more accurate tracking and savings measurement.
- The priority is the bottom line. Being able to accurately describe identified savings and then follow them through to bottom-line impact, and even business outcomes, is an incredibly powerful capability; it's the key to elevating the procurement organization to a level of strategic importance within the company.
The majority of attention at most organizations is paid to direct procurement. To the extent that indirect is addressed, it's frequently done by generalists, not specialists, which limits efficiency and impact. Consider these tips when seeking to secure and retain the right talent:
- Invest in talent development. Commitment to developing and coaching your SMEs with critical attributes and competencies goes a long way.
- Budget appropriately. Expect to pay when looking for the select skills. Allow for bonuses when contributing to the company's cost management, quality, delivery on time, inventory management, etc.
- Allow assignments. If your company has international divisions, consider partial or full assignment and business line experience. This allows growth to your top talent and confirms your commitment to their progress.
- Find other means to help grow talent within. Hire former and/or experienced consultants for knowledge transfer.
World-class procurement organizations take an integrated, end-to-end approach from source through pay and make the commitment needed to develop internal stakeholder relationships to get maximum indirect spend under management. Consider these objectives:
- Target 85% spend under management. Indirect spend is highly splintered. Significant effort and stakeholder relationship development is required, but world-class organizations are able to achieve 85% or more of indirect spend under management.
- Integrate your sourcing and procurement organizations. There must be tight linkage between sourcing and procurement to ensure that negotiated savings are pulled through to the bottom line. Consider appointing a liaison to bridge the two functions.
- Increase the frequency of sourcing events. Determine an average length of time between sourcing events in each category and set quantifiable goals to reduce those lengths of time.
- Assign dedicated teams to run sourcing events. Create your sourcing teams based on talent, experience level and category priority. Without a dedicated team with category knowledge to run quality sourcing events, requirements are often not accurately captured and money is wasted on high-specification products/services.
Jason Evans is vice president at Xchanging, a business process, procurement and technology services provider. Learn more at www.xchanging.com.