Succeeding in the World of Indirect Spend

In procurement, there is a difference between direct and indirect spend, and the best organizations know it


  • Identify aggregate spend through spend analytics. The first step is often develop spend analytics by category across the organization. This can be a useful tool in the early dialogue with internal stakeholders.
  • Involve stakeholders at the beginning. Internal stakeholders are often more willing to comply with contracts if they have been part of the strategic sourcing initiative from the start. A leader’s initial efforts should be thought of as diplomatic effort of building bridges rather than a tactic of strong arming stakeholders through coercion or persuasion. An important initial step is to form committees of stakeholders throughout the organization. It is wise to work collaboratively within these groups to establish criteria over vendor selection for all future sourcing initiatives. Internal stakeholders also need to be part of the initial RFP/RFQ bid process.
  • Present spend analytics to stakeholders. Many internal stakeholders never have been presented with objective spend analytics. If these analytics are shared combined with focus on a broad range of goals of vendor performance and reliability, the internal customer will often become a more active participant in this transformational change within the arena of procurement.
  • Presenting value to aggregating spend to stakeholders. As mentioned, it is advisable to present some of the spend analytics to the internal customers. However, executives should not use the spend analytics or cost driven model as the sole motivating factor for aggregating spend or negotiating savings. Internal stakeholder are often more concerned about vendor performance, reliability and on-time delivery rather than just cost. A change agent needs to present a compelling case that adds value to sourcing initiatives in ways other than just cost reduction and saving money. An easy to use eProcurement system is one concrete example of value beyond just cost savings on the road to aggregation of spend. Internal customers also need to see the favorable results of vendor savings on their unit’s P & L.
  • Rate of change. Procurement executives often are overzealous or unrealistic about the rate of change that is possible around indirect spend aggregation within an organization. It is virtually impossible to get all of the internal stakeholders on board at the very beginning. A judicious selection of the most willing and early innovators can pave the way for success by demonstrating success to reluctant participants. It is vitally important to be patient with internal stakeholders but so passive that the status quo never changes.                                                            
  • Building change through consensus and not persuasion. If the executive sees the procurement initiatives as a collective and collaborative process in which everyone has input, it can change the group dynamic from one of coercion or persuasion to one of building consensus. The collective group can often bring about a far greater change than the sole efforts of one individual.
  • Using a strategy of marketing to internal stakeholders. Wise strategists use an approach of reaching out to stakeholders as internal customers and not captives. Any wise marketer first will listen to the needs of their customers and then design a way to approach those needs based on their capabilities. A procurement leader should market the broad range of strategic sourcing and procurement capabilities to all of the internal customers.

In summary, a procurement executive will be successful in the aggregation of indirect spend and reduction of cost if he or she sees the process as a gradual journey. There will only be transformational change if the internal customers join the journey and become willing and active participants.

Steven Lutzer is the president of Lutzer Global Inc., an executive search firm that specializes in managerial talent in the field of supply chain, strategic sourcing and procurement. Lutzer had a 20-plus year career in supply chain management and global sourcing before founding Lutzer Global. More information at: www.lutzerglobal.com.

  • Enhance Your Experience.

    When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required