Hackett Research Points to Big Need for Spot Buying Automation Amid General B2B Procurement Efficiency Drive
Hackett Research Points to Big Need for Spot Buying
Automation Amid General B2B Procurement Efﬁciency
Transcript of a BrieﬁngsDirect podcast on how spot buying and tactical spending is giving a
competitive advantage to both buyers and sellers.
Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP Company
Dana Gardner: Hello, and welcome to a special BrieﬁngsDirect podcast series coming to you
from the 2013 Ariba LIVE Conference in Washington, D.C.
We're here in the week of May 6 to explore the latest in collaborative
commerce and to learn how innovative companies are tapping into the
networked economy. We'll see how they are improving their business
productivity and sales, along with building far-reaching relationships with new
partners and customers.
I'm Dana Gardner, Principal Analyst at Interarbor Solutions, and I'll be your host throughout the
series of Ariba-sponsored BrieﬁngsDirect discussions.
Our next innovator panel discussion focuses on the rapid adoption of better means for companies
to conduct so-called spot buying, a more ad-hoc and agile, yet managed, approach to buying
products and services. [Disclosure: Ariba is a sponsor of BrieﬁngsDirect podcasts.]
We'll learn about new research from The Hackett Group that
supports the need for better spot-buying capabilities and we'll
learn how two companies are beneﬁting from making spot
buying a new competency.
To hear the latest and greatest around agile procurement of low-volume purchases, please join
me in welcoming our panel. We're here with Kurt Albertson. He is Associate Principal Advisor at
The Hackett Group in Atlanta. Welcome, Kurt.
Kurt Albertson: Thank you, Dana.
Gardner: We're also here with Ian Thomson. He is Koozoo’s Head of Business Development,
based in San Francisco. Welcome, Ian.
Ian Thomson: Thank you. Thanks for having us.
Gardner: And Cal Miller. He is Vice President of Business Development for Blue Marble Media
in Atlanta, welcome.
Cal Miller: Thank you. Glad to be here.
Gardner: Let’s start with you, Kurt. Tell me a little bit about what this notion of spot buying is?
How did we get to the need for tactical sourcing and how did we actually begin dividing tactical
and strategic sourcing at all?
Albertson: That’s a great question Dana. Let’s talk about the need ﬁrst. This is an important
topic, because a lot of our clients are focused on it, and the need really starts at the executive
When you look at enterprises out there, our Key Issues Study for 2013 identiﬁed the top area as
proﬁtability. So companies are continuing to focus on the proﬁtability objective.
The second slot was customer satisfaction, and you can view customer satisfaction as external
customers, but also internal customers and the satisfaction around that.
With that as the overlay in terms of the two most important objectives for the
enterprise -- the third, by the way, is revenue growth -- let’s cascade down to
why tactical sourcing or spot buying is important.
The importance comes from those two topics. Companies are continuing to
drive proﬁtability, which means continuing take out cost. Most mature
organizations have very robust and mature strategic-sourcing processes in place.
They've hired very seasoned category managers to run those processes and they want them
focused on the most valuable categories of spend, where you want to align your most strategic
On the other side of that equation, you've got this transactional stuff. Someone puts through a
purchase order, where procurement has very little involvement. The requisitioners make the
decision on what to buy and they go out and get pricing. Purchasing’s role is to issue a purchase
order, and there is no kind of category management or expense management practice in place.
That’s been the traditional approach by organizations, this two-tiered approach to procurement.
The issue, however, comes when you have your category managers trying to get involved in
spend where it’s not necessarily strategic, but you still want some level of spend management
applied to it. So you've got these very seasoned resources focused on categories of spend that
aren’t necessarily where they can add the biggest bang for the buck.
That’s what caused this phenomenon around spot buy or tactical buy, taking this middle ground
of spend, which our research shows is about 43 percent of spend on average. More importantly,
more than sometimes half the transactional activity comes through it. So it's putting in place a
better model to support that type of spend, so your category managers can go off and do what
you hired them to do.
Gardner: And that 43 percent, does that cut across large companies as well as smaller ones? I
wonder if smaller companies might even have a higher percentage of nonstrategic types of
Albertson: The 43 percent is an average, and there are going to be variances in that, depending
on the industry, spend proﬁle, and scale of the company, as you noted. Companies need to look at
their spend, get the spend analytics in place to understand what they're buying to nail down the
value proposition around this.
Smaller companies generally aren't going to have the maturity in place in terms of managing
their spend. They're not going to have the category-manager capabilities in place. In all
likelihood, they could be handling a much higher percentage of their spend through a more
transactional nature. So for them, the opportunity might even be greater.
Gardner: And of this 43 percent, is a signiﬁcant portion of this what we might consider a "ﬁre
drill" type of purchase, where people are tasked with very quickly acquiring services, goods, or
materials? Perhaps urgency mode might not be a very good position in which to get best price or
even do due diligence?
Albertson: Yeah, great observation, Dana. If we think about the reasons for doing this,
proﬁtability was one, but customer service was the other, and customer service translates into
That’s usually the issue with this type of spend. You can’t afford to have a category manager take
it through a strategic sourcing process, which can take anywhere from 6 to 30 weeks.
People need this tomorrow. They need it in a week, and so you need a mechanism in place to
focus on shorter cycle times and meet the needs of the customers. If you can’t do that, they're just
going to bypass procurement, go do their own thing, and apply no rigor of spend management
It's a common misperception that of that 43 percent of inﬂuence spend that we would consider
tactical, it's all emergency buys. A lot of it isn’t necessarily emergency buys. It’s just that a large
percentage of that is more category-speciﬁc types of purchases, but companies just don’t have
the preferred suppliers or the category expertise in place to go out, identify suppliers, and
manage that spend. It falls under the standard levels that companies might have for sending
something through strategic sourcing.
An example of that might be $250,000. Anything below that might be just left up to the
requisitioner to ﬁgure out how they want to spend.
Gardner: Let’s go to some organizations that are grappling with these issues. First, Koozoo. Ian,
tell us a little bit about Koozoo and how spot buying plays a role in your life.
Thomson: Koozoo is a technology startup based in San Francisco. We're venture-backed and
we've made it very easy to share your view using an existing device. You take an
old mobile phone, and we can convert that, using our software application, into
a live-stream webcam.
In terms of efﬁciency, we're like many organizations, but as a startup, in
particular, we're resource constrained. I'm also the procurement manager, as it
turns out. It’s not in my job title, but we needed to ﬁnd something fast. We were
launching a product and we needed something to support it.
It wasn’t a catalog item, and it wasn’t something I could ﬁnd on Amazon. So looked for some
suppliers online and found somebody that could meet our need within two weeks, which was
super important, as we were looking at a launch date.
Gardner: And had you been involved with Ariba before this -- and you then found the spot
buying capability? How did you line up with Ariba on this?
More developed need
Thomson: No, I wasn’t involved with Ariba. I've been here at this conference. So I understand
that there is a network and there are a lot of other things that the Ariba Network can do for
companies, which I would guess are larger companies that have a more developed procurement
I had gone to Alibaba and I looked at what Alibaba’s competitors were. Ariba Discovery came up
as one of them. So that’s pretty much how I ran into it.
Gardner: Is it fair to say you "spot buyed" Ariba in order to spot buy?
Thomson: I think I "spot buyed" Ariba in order to spot buy. I tested Alibaba, and to be fair, it
was not a very clean approach. I got a lot of messy inbound input and responses when I asked for
what I thought was a relatively simple request.
There were things that weren’t meeting my needs. The communication wasn’t very easy on
Alibaba, maybe because of the international nature of the would-be suppliers.
Gardner: Let’s go to Cal Miller at Blue Marble Media. First, Cal, tell us a bit about Blue Marble
and why this nature of buying is important for you?
Miller: Blue Marble is a very small company, but we develop high proﬁle video, ﬁlm, motion
graphics, and animation. We came to be involved with Ariba about three years ago. We were
selected as a supplier to help them with a marketing project. The relationship grew, and as we
learned more about Ariba, someone said, "You guys need to be on the Discovery Network
program." We did, and it was a very wise decision, very fortunate.
Gardner: Are you using the spot buying and Discovery as a way of buying goods or allowing
others to buy your goods in that spot-buying mode or both?
Miller: Our involvement is almost totally as a seller. In our business, at least half of our clients
are in a spot-buy scenario. It’s not something they do every month or even every
year. We have even Fortune 500 companies that will say they need to do this
series of videos and haven’t done it for three years. So whoever gets assigned to
start that project it is a spot buy, and we're hopeful that they'll ﬁnd us and then we
get that opportunity. So spot buying is a real strategy for us and for developing
Gardner: You found therefore a channel in Ariba through which people who are in this ad-hoc
need to execute quickly, but not with a lot of organization and history to it, can ﬁnd you. How
did that compare to other methods that you would typically use to be found?
Miller: Actually, there is very little comparison. The batting average, if you will, is excellent.
The quality of people who are coming out to say, "We would like to meet you" is outstanding.
Most generally, it’s a C-level contact. What we ﬁnd is the interaction allows for a real
relationship-development process. So even if we don’t get that particular opportunity, we're
secure as one of their shortlisted go-to people, and that’s worth everything.
Gardner: Back to Kurt Albertson from The Hackett Group. When you listen to both a buyer and
a seller, it seems to me that there is a huge untapped potential for organizing and managing spot
buying in the market.
Finding new customers
Albertson: Listen to Cal talk about Blue Marble’s experience. Certainly from a business
development perspective, it’s another tool that I'm sure Cal appreciates in terms of going out and
ﬁnding new customers.
Listening to Ian talk about it from the buy side is interesting. You have users like Ian who don’t
have a mature procurement organization in place, and this is a tool they're using to go out and
drive their procurement process.
But then, on the other end of that scale, you do have large global companies as well. As I talked
about, these large global companies who haven’t done a good job of managing what we would
consider tactical spend, which again is about 43 percent of what’s inﬂuenced.
For them, while they have built out very robust procurement organizations to manage the more
strategic spend, it’s this 43 percent of inﬂuence spend that’s sub-optimized. So it’s more of an
evolution of their procurement strategy to start putting in place the capabilities to address that
chunk of spend that’s been sub-optimized.
Gardner: Tell us a bit more about your research. Were there any other ﬁndings that would
beneﬁt us, as we try to understand what spot buying is and why it should be important to more
buyers and sellers?
Albertson: The ﬁrst question that everyone generally tends to ask when trying to build out a new
type of capability is what’s the return on that. Why would we do this? We have already talked
about the issue of longer cycle times that occur, if you try to manage the spend through a
traditional kind of procurement process and the dissatisfaction that causes. But the other option is
to just let the requesters do what they want, and you don’t drive any kind of spend management
practices around it.
When we look at the numbers, Dana, typically going through a traditional strategic sourcing
process with highly skilled category managers, on average you'll drive just over 6 percent
savings on that spend. Whereas, if you put in place more of a tactical spot-buy type process, the
savings you will drive is less, 4.3 percent on average, according to our research.
So there's a little bit of a delta there by putting it through a more formal process. But the
important thing is that if you look at the return, you're obviously not spending as much time and
you're not having as mature resources and as experienced resources having to support that spend.
So the investment is less. The return on investment that you get from a tactical process, as
opposed to the more strategic process, is actually higher.
There is a very strong business case for going out and putting in place the capabilities to address
the spend. That’s the question that most organizations will ask -- what is the return on the
Gardner: As we're all here at the Ariba LIVE Conference and we have heard about their
processes and improvements, do you have any sense of the landscape in the marketplace? Are all
the procurement providers, service providers jumping on this? Is Ariba in front of the game in
any way to shape up the landscape in terms of how business-service providers like Ariba are
Albertson: Another good question Dana, and I'll talk speciﬁcally to Ariba, since we're all
gathered together this week at Ariba LIVE. There are some challenges with this process, and if
you look at Ariba, they evolved from the front end of the sourcing process, built out capabilities
to support that, and have a lot of maturity in that space.
The other thing that they have built out is the networked community. If you look at tactical
buying and spot buying, both of those are extremely important. First of all, you want a front-end
ERFx process that you can quickly enable, can quickly go out in a standard methodology, and go
to the market with standard requirements.
But the other component of that is that you need to have this network of a whole bunch of
suppliers out there that you can then send that to. That’s where Ariba’s strength is in the fact that
they have built out a very large network, the largest network out there for suppliers and buyers to
And that’s really the most signiﬁcant advantage that Ariba has in this space -- that network of
buyers and suppliers, so they can very quickly go out and implement a supplier discovery type of
execution and identify particular suppliers.
We may call this tactical spend, but it’s still important to the people who are going out within the
companies and looking for what they're trying to get, a product or service. There needs to be a
level of due diligence against these suppliers. There needs to be a level of trust. Compare that to
doing a Google search and going out there and just ﬁnding suppliers. The Ariba Network
provides that additional level of comfort and trust and prequaliﬁcation of suppliers to participate
in this process.
Gardner: Kurt, how do you think this is going to shape up in terms of the adoption patterns?
Will large companies that are already doing strategic procurement perhaps go down process, as
opposed to downstream, to foster more tactical buying and therefore Ariba might ﬁnd a go-to
market from their existing installed base of strategic procurement to this type of service?
Or do you expect also that smaller organizations doing more tactical buying will adopt things
like spot buying and then that might lead to more strategic procurement or more organized
approaches to procurement, which would then perhaps allow Ariba to ﬁll that goal? It seems like
a no-lose situation for Ariba.
Albertson: I think you're right. You're going to ﬁnd companies coming at it from both ends. The
smaller, less mature organizations from a procurement perspective are going to come at it from a
primary buying and sourcing channel, whereas for the larger organizations, the bigger bang for
the buck for them in terms is going after and getting control over the strategic spend.
Again, we're in an environment right now, particularly for the larger organizations, where
everyone is trying to continue to evolve the value proposition. Strategic category managers are
moving into supply-relationship management, innovation, and how do they collaborate with
suppliers to drive innovation.
We all know that across the G&A function, including procurement, there are not the
signiﬁcant investments of resources being made. So the only way they are going to be able to do
that is extract themselves out of this kind of tactical activity and build out a different type of
capability internally, including leveraging solutions like Ariba and the Supplier Discovery
capability to go out and help facilitate that buy so that those category managers can continue to
evolve the value that they provide to the business.
Gardner: Lastly, it seems that the cloud model really suits this spot-buying and tactical-buying
approach very well. You log on, the network can grow rapidly, and buyers and sellers can
participate in this networked economy. Is this something that wouldn’t have happened 5 or 10
years ago, when we only looked at on-premise systems? Is the cloud a factor in why spot buying
Albertson: That’s a great observation Dana, and I think you are right on that. Obviously, one of
the drivers of this is how quickly can you get up to speed and start leveraging the technology and
enabling the spot-buy tactical sourcing capabilities that you're building.
Then on the supply end, one of the driving forces is to enable as many suppliers and as many
participants into this environment. That is going to be one of the key factors that determines
success in this area, and certainly a software-as-a-service (SaaS) model works better for
accomplishing that than an on-premise model does.
Gardner: We'll have to leave it there I am afraid. We've been talking about the growing need for
better spot buying, how companies can come together and beneﬁt through a tactical approach,
and how that’s become a new competency for both the buyers, the sellers, and providers like
Please join me in thanking our guests. We've been here with Kurt Albertson. He is the Associate
Principal Advisor at The Hackett Group in Atlanta. Thanks so much, Kurt.
Albertson: My pleasure, Dana.
Gardner: We have also been joined by Ian Thomson, the Koozoo’s Head of Business
Development. Thank you, Ian.
Thomson: Thank you.
Gardner: And Cal Miller, Vice President of Business Development at Blue Marble Media, thank
Miller: It was a pleasure.
Gardner: And thanks too to our audience for joining this special podcast coming to you from the
2013 Ariba LIVE Conference in Washington D.C.
I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host through this series of
Ariba sponsored BrieﬁngsDirect discussions. Thanks again for listening, and come back next
Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP Company
Transcript of a BrieﬁngsDirect podcast on how spot buying and tactical spending is giving a
competitive advantage to both buyers and sellers. Copyright Interarbor Solutions, LLC,
2005-2013. All rights reserved.
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