With inflation hitting a 30-year high, organisations are looking for any opportunity to optimise spend. Here’s why they should be looking at indirect procurement.
Indirect procurement isn’t a new field. It’s been around for decades, helping to control spending and reliably source the goods and resources internal teams need to do their jobs and keep the business operational.
But, today, it still finds itself in the same position that direct procurement was in up until a few years ago. Perceptions of indirect procurement as a cost-saving, enabling function have caused many organisations to overlook the potential value it can deliver.
It’s an area of massive opportunity. And right now, with ongoing supply shortages, long supply chain delays, and inflation hitting a 30-year high, no organisation can afford to overlook opportunities to optimise spend.
In a recent webinar jointly organised by CASME, a global membership network for corporate procurement and The Smart Cube, our panellists discussed the hidden opportunities available across indirect procurement, and what indirect procurement leaders can do to help mitigate the impacts of surging price inflation around the world.
Graham Crawshaw – Global Content and Services Director and Board member, CASME
Mike Greene – Director of Indirect Sourcing, Newell Brands
Klaids Lafon de Ribeyrolles – VP Indirect Procurement, Schneider Electric
Omer Abdullah – Co-founder and MD, The Smart Cube
The full webinar is now available to watch on-demand. But here’s an overview of what they shared.
Four big opportunities that many organisations are missing
During the session, all four speakers shared what they see as the biggest opportunities available across indirect procurement teams today, that many organisations aren’t taking advantage of:
#1 Sharing best practices and optimising resource use across the business
Stepping up to offer his insight first, Mike shared how the indirect procurement team at Newell Brands has effectively become a pollinator of best practice across diverse lines of business. Using its complete view of indirect purchasing habits and spending, the team is able to find commonality in needs, guide domains towards using the same or similar tooling, and learn from each other to improve and optimise how they’re using resources.
#2 Looking beyond basic spend KPIs to drive business value
Following Mike, Klaids shared a valuable anecdote from Schneider Electric, where his indirect procurement team had worked closely with production staff who were buying metal cutting tools. The engineering team convinced them to pay for premium tools, which negatively impacted procurement’s spend KPIs, but delivered huge value to the business.
The premium equipment accelerated production and output, and lasted far longer than the cheaper alternatives. If you look solely at procurement’s KPIs, that was a bad move. But it was certainly the right move for the business — generating massive value and building enterprise confidence in procurement’s commitment to providing them with everything they need to do the best job possible.
#3 Leveraging indirect procurement as an internal crisis response resource
At the start of 2019, very few people would have predicted that in under a year’s time, Personal Protective Equipment (PPE) like face masks and hand sanitiser would become a strategy category for tens of millions of businesses around the world.
Once the pandemic hit, indirect procurement’s ability to source PPE had a very direct impact on every organisation’s ability to return to business. Prices may have been high, but the teams that were able to reliably source PPE at the right time delivered immeasurable value to their businesses — and their people.
With the frequency and severity of crisis events increasing globally, that’s a key source of value for indirect procurement moving forward. When uncertainty and global events hit, highly responsive indirect procurement teams are a massive asset, helping to minimise the impacts those events have on businesses.
#4 Looking at data beyond spend analytics
Indirect procurement teams have a wealth of data available to them today. They’re used to closely monitoring and analysing spend across the business, but if that’s all they’re looking at, they’re missing some powerful opportunities to create value.
During the webinar, Klaids highlighted the internal data available that can help indirect procurement understand how it could better serve the business. By diving into its own processes and performance, indirect procurement can uncover opportunities to improve and accelerate buying — moving towards delivering B2C levels of convenience and speed to internal customers.
What’s the impact of inflation?
Global inflation has dominated headlines recently. So, it’s no surprise that the conversation quickly turned to its impacts during our webinar. Together, the team shared three valuable tips to help indirect procurement professionals respond to, and manage today’s hugely inflated pricing landscape.
#1 Understand the data first, so you know what you’re dealing with
With inflation hitting a 3-year high in some countries, Graham pointed out that many of the professionals working in indirect procurement today won’t have ever had to deal with inflationary conditions like these before. So, the first step towards making good decisions on how to mitigate the impacts of inflation, is to understand exactly what you’re dealing with.
Fortunately, all of the data available to us today can help. Teams can look at their cost models and start to break them down to understand all of the individual drivers influencing them. Then, they can even start to forecast what the short-term future of those drivers might look like — bringing some much-needed control and predictability to today’s environment.
#2 Spend your time focusing on the things you can control
You can’t influence the price of oil. But you can optimise the amount of it that you use — and the same is true for virtually every category and service your business spends money on.
This period of intense inflation should be a watershed moment for resource allocation and utilisation. By looking closely at how well you’re using the things you’re spending money on, you can not only save money and mitigate the short-term impacts of inflation, you can build more efficient processes and operations that deliver value and support sustainability efforts for decades to come.
#3 Look at new levers to relieve short term pressure
Businesses can’t stop buying the things they need just because prices are inflated. So, rather than trying to bring those prices down, indirect procurement needs to start looking at other levers it can influence to relieve some of the pressure caused by high prices.
Working capital is a great place to start. By collaborating closely with suppliers, indirect procurement teams can negotiate better payment terms for example, which can help them get through the constrained conditions we’re seeing today. Keep in mind that suppliers don’t want to squeeze every dollar from your team. Your mutual survival is in their best interests, so most will be very happy to work with you in a way that helps to continue thriving and buying.
Kickstart a new era of indirect value creation
Those are just a few of the highlights from the webinar. Watch the full session on-demand to discover everything the team had to share, and get more valuable tips to help you maximise the value that indirect procurement can create for your organisation.
Strategically managing indirect spend is now more essential than ever. To find out how we can help your team deliver greater value, optimise indirect procurement spends and overcome ongoing challenges through reliable and actionable insights, visit our website.