Is Increasing Spend Under Management still Possible?
Procurement departments have been attempting to push more spend through e-procurement systems for over 15 years. There were big gains in the early years, but at most companies the annual increase in spend under management is now growing at rate of business growth or, in some cases, has seen a decrease. Unfortunately, many vendors are increasingly providing business buyers with over-the-phone and online ordering options that make it easier to “go rogue.” How should Procurement respond? Where should it focus to increase spend under management, or is that goal no longer as relevant?
Why is spend under management falling?
There are two main reasons for the slippage. One, we are at the latter stage of the adoption curve of e-procurement systems. It’s been 15 years of hard work and most of the spend that can be managed via e-procurement already is there. Two, the unfortunate reality for many spend categories is that it is easier for a business buyer to buy outside the system than to do the right thing and purchase products and services through the procurement process. More highly regulated industries such as life sciences and financial services have done a better job at driving compliance, but across many industries, procurement is continually competing against well-funded vendors that are doing everything they can to go around them.
Is increasing spend under management still the right goal?
One answer to these challenges is to focus on value add that doesn’t impact spend under management: re-negotiating contracts already under management, reducing transactional costs for the organization, fundamentally changing the sourcing strategy for certain categories, etc. But if Procurement does not defend and continually enforce and expand its spend under management, it risks being seen as optional and even more spend will be lost to rogue buying. So Procurement must continually focus on the spend under management goal if only to maintain current levels.
What new categories can be added to an e-procurement process to increase spend under management?
Services spend is the proverbial “dangling carrot” for Procurement. If only those large, high margin expenditures could be brought under control. Unfortunately, most organizations have struggled to reign in spend on categories such as professional services, agencies, and staffing because it is so challenging to standardize the deliverables in those categories.
Other services categories show more promise. Specifically, services categories that can be “productized” and purchased via an e-procurement system with a dynamic punchout catalog. For example, printing, car services, writing, transcription, design, translation, etc. can all be treated like products with service catalogs that generate instant quotes that can be punchouts from an e-procurement system. A number of companies in a variety of industries have made this transition and are realizing significant cost savings.
So take a step back and take a look at your services spend. Which categories could be considered products through the standardization of the pricing and deliverables? These categories can fit neatly into your existing eprocurement system as a way to increase spend under management.