Future of Indirect Purchasing - Shifting to New Process and Technology

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History shows that any level of focus on Indirect Purchasing can identify significant savings
Disruptive changes across many indirect spend categories have Chief Purchasing Officers refocusing on indirect spend. The biggest opportunities in next 5 years will come from an approach using both expert category managers and cloud based software as service tools.

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Future of Indirect Purchasing - Shifting to New Process and Technology

  1. 1. New savings opportunities as a result of disruptive changes across many indirect spend categories have Chief Purchasing Officers refocusing on indirect spend. Bill Kohnen Purchasing Fundamentals 2014 Future of Indirect Purchasing
  2. 2. Summary Organizations that focus on Indirect spend always identify and capture some savings Biggest Challenge is fully capturing and sustaining savings Within the Indirect Spend there is significant disruption taking place at category levels Multiple viable approaches are available to companies offering different levels of control, total cost and technology Biggest opportunities in next 5 years will come from an Indirect approach using both expert categories managers and cloud based software as service tools.
  3. 3. Companies Across all Segments are Actively Seeking Indirect Category Spend Leaders Getting the Director is less of a challenge than getting Category Managers with deep content knowledge As a result companies must focus on process and technology to optimize results
  4. 4. Examples of Indirect Categories in State of Disruption Category Companies Source of Disruption Servers/Routers HP/Dell/Cisco Open Computing Enterprise Software Oracle/SAP Cloud Based Software Office Supplies Office Depot/Staples Entry of Amazon and Walmart.com Corporate Travel American Express Open booking Web based solutions Temp Labor Manpower Robert Half Viable BPO for general functions: Accounting, Customer Support, HR, IT, Engineering Legal etc…
  5. 5. Continuum of Methodologies Internal Enterprise Hybrid Outsource Methodology Tactical RFQs Strategic Sourcing Strategic Sourcing and use SaaS Content Third Party Content Expertise with low operational cost Staff Buyers Assigned Category Managers Indirect Manager System Maintenance Commodity Mangers Purchasing Program Manager Tools Manual Enterprise Tool Internal Catalog Internal System Cloud Based SaaS Tools Catalogs, Transaction and Analytics Provider provided SaaS tools Technology Indirect Spend Not Integrated with Direct Spend Process Old Style UI with entry into ERP platform Consumer like UI Constant Maintenance and upgrade Seamless Integrations Generally just web connection Compliance Through Site Policy and Management practice Policy and Catalogs Compliance through ease of use and end user value Through provider set up Analytics Nil – Or Manual Cumbersome ERP Analytic Tools User friendly relevant and real time Reporting from provider Cost of Process Low High Moderate Moderate Savings Low and Inconsistent Moderate and Inconsistent High and Sustainable Moderate and difficult to sustain after easy items
  6. 6. Tactical Enterprise SaaS BPO Indirect Purchasing Approaches in Practice Today 5 years Best Practice Benchmarks will spark Shift to SaaS to with Hybrid Organization Approach Companies Stuck with Legacy ERP Systems
  7. 7. Most Common Approach Internally based following basic purchasing skills Buyer Assigned Indirect as a commodity Minimal Analytics and Integration outside of site Not Technology Based Will Identify and Negotiate Savings opportunities of 30% or more Challenge is actually capturing savings. Often less than 50%
  8. 8. Enterprise Strategic Sourcing Approach Enterprise wide tool to manage indirect spend including creating and maintaining unique catalogues. Often Legacy ERP system or link to it manually or with some link Can result in better savings capture ~ 60% to 70% However, total costs of tool and maintenance of catalogues can be significant
  9. 9. Hybrid Approach Hybrid Approach Combing Internal Strategic Sourcing with Content Included with a Cloud Based Software as a Service Indirect spend solution Can optimize leverage where you have it For other items take advantage of SaaS platform leverage Lower total cost with SaaS for solution and Catalog Management Optimized analytics for Indirect Compliance and spend capture driven by consumer like user interface
  10. 10. Outsourcing Complete Outsourcing of Indirect Spend Typically infrastructure and process cost saving of 20% - less than other categories like AP, Customer Service Category Item cost savings of 20% Jury still out on comparison of negotiated savings capture rates Still requires management and integration of tools for users
  11. 11. Summary History shows that any level of focus on Indirect Purchasing can identify significant savings The real challenge is to capture savings on a sustained basis Getting a few top people to drive results like in many areas probably produces the best results however, that is becoming increasingly difficult and is not sustainable CPOs will be forced to also consider process and technology options to optimize and sustain indirect savings to meet their goals.

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