Start handling your tail spend strategically
Regardless of industry, organisations face common challenges when it comes to achieving the best possible savings along with making a robust strategic spending plan. Fragmenting spending between direct and indirect, among multiple locations, categories, departments, and units is not easy and can make the job of capturing new savings opportunities much harder.
Those responsible for indirect procurement are often lacking the influence inside an organisation to have the same technology, talent and spending as direct-procurement professionals – in some cases, companies don't even have the right tools to monitor indirect categories to help analyse how they perform.
Both direct and indirect spending are important to the main goal of making the business work with better cost opportunities while generating value to support profits and help on the company's growth. But making procurement within the tail "secondary" to direct, you could be losing out on some potentially big cost savings.
According to research conducted by McKinsey & Company, indirect spend has been steadily growing by an estimated 7% per year globally since 2011, so treating procurement within indirect categories the same as you would with direct procurement should really be a consideration of all organisations.
So below, we'll list a few strategies that procurement leaders can follow to overcome internal barriers and ensure spending in indirect categories holds the same importance.
Endorse procurement responsibility
Procurement as a department has the ethical responsibility of spending the company's money wisely and fairly according to their standards, and also ensuring that suppliers do ethical work. This responsibility includes all company's spending in all categories.
So having a robust procurement policy that is detailed enough for direct spend but simplistic enough for the often ad-hoc low value transactions in the tail coupled with a good communications between departments, can avoid instances where stakeholders are unclear as how to contract or purchase something responsibly, which can lead to missed savings and even worse, using a supplier that is unvetted and risky.
Some companies use spend thresholds, allowing budget holders to delegate who in the department has approval to purchase and contract with suppliers without the need for procurement to get involved, with others setting a '3 quote minimum' stipulation for anything over a certain amount.
Use category experts
Strategic procurement usually utilise experts for contract management, negotiation, project management, spend analysis, and company governance. This means categories of spend usually have one or more experts who know the marketplace, have experience in knowing what to look for and how best to get the supplier contracted quickly and properly.
Tail spend procurement often suffers from a lack of leadership when it comes to setting out correct procedures and practices, but applying category expertise in at least the largest spend segments such as Facilities Management and IT, at least periodically, will give those regularly procuring in those categories a better sense of the department's needs and bring to the surface better business opportunities, along with the possibility of improving processes, gaining value and reducing costs. It also allows a deeper understanding of the supplier's work scope, which can lead to a stronger partnership and a resilient supply chain.
Invest in the right tools for the job
When it comes to investing in new technology and systems, strategic procurement (understandably), are usually first in line to benefit but there are now a significant amount of options available that can mean your indirect spend can receive the same careful thought and planning as your direct. Capturing data at key points during a transaction mean that you can investigate the data to find patterns and unforeseen risks, however, be careful not to disrupt the often very short timescales users procure goods and services in the tail, as this will often times lead to circumnavigation of the technology put in place.
The Maistro Platform is sourcing, tendering and tailspend management platform all in one. From tendering large and complex contracts to obtaining three quick quotes to replace doors in an apartment in the space of an hour, the system is designed to easily capture data without interrupting your users workflows for the small spend.
To see for yourself how easy it is to transform your indirect procurement, get in touch for a demo.