Ashwani Singh 25 th Sep 2014 Indirect Procurement
Ashwani Singh 25th Sep 2014
Indirect Procurement
What is Indirect Procurement
Indirect procurement is the sourcing of all goods and services for a business that enable its activity
The indirect procurement is a slow, technology intensive process requiring change management across the organization boundaries
Direct Vs Indirect procurement
Direct IndirectDefinition Cost of doing business Cost of being in Business
Consumer Customer/Client Internal stakeholder
Supply Disruption Business stops Business stops
# of supplier Low High
# of categories Low High
Value High Medium
Spend High Medium
Indirect Procurement
Globally common Indirect Procurement categories include
MRO
• Consumables• Electrical
supplies• Industrial
supplies• Capital
Equipment • Machine
Parts• Uniforms• Safety
equipment
TRAVEL
• Air Travel• Hotels• Rental Cars• Travel card• Meetings• Car fleet
IT & TELECOM
• Hardware• Software• Services• Voice & Data• Wireless
• Property Management
• Facilities Services
• Capital Projects
• Utilities• Office
Supplies• Furniture• Repair and
maintenance
PROPERTIES PROFESSIONAL SERVICES
• Consultancy• Financial
advisory• Engineering
services• Legal
services• Advertising• Promotions• Trade shows
& events• Marketing
• Ocean freight• Rail /
Intermodal• Airfreight /
Expedited• Courier &
messenger• Small
package• Storage /
warehousing
TRANSPORTATION
Challenges – Indirect Procurement Require significantly more and varied suppliers.
Have a medium average spend.
Require larger numbers of smaller purchases, more frequently.
Consist of more “maverick” (first time) spend.
Be driven by more internal stakeholders.
Require diverse experience.
Be difficult to evaluate.
Be considered less strategic.
Struggle with delivering indirect procurement internally
Indirect Procurement - Opportunities
Perceived Opportunity
PurchaseCost
Quality Costs
SpecificationsInventory Practices
Warranty TermsDisposal/Salvage Practices
Demand Drivers
Environmental Issues
FreightStandardization
Procurement Practices
Warehousing CostsOperational Practices
Actual Opportunity
Maintenance Expenses
Total Cost Approach
Best Practices – Indirect Procurement Total System Cost
Buyer Cost
Interaction Cost
Profit
Supplier Cost
Total System Cost Savings
Traditional Focus (price only)
Buyer Cost
Interaction Cost
Profit
Supplier Cost
Strategic Focus
StrategicTraditional
Initiative Process - Indirect Procurement
1. Define category
2. Initial data/ information gathering
3. Segment and prioritize
6. Develop Commodity profilesCustomer needs/expectations
• Current sales • Suppliers
7. Develop indirect sourcing approach
8. Supplier discussions and alternative review
9. Agreement Execution
10. Implement and maintain compliance
4a. “What is neededand how buy?”
(key users)
4b. “How establishedcurrent agreement?”
(key buyer)
5a. “What data isavailable?”
(auto/manual)
5b. “How is data stored
and retrieved?”(auto/manual)
Concept to reality - Indirect Procurement
Immediate plays/best deal leverage1
Price/cost restructuring (Volume leveraging and supply pattern shifts - less
complex)
Short term buy plans (Volume leveraging, innovation, and supply pattern shifts
- more complex)
Sourcing effectiveness teams (SETs) (Supplier integration, productivity, standardization,
performance base improvements
2
3
4
Shareholder equityeconomic profit
User educationand training
Process/policyEnforcement
Measurementand budgetrestrictions
$
Segm
ent a
nd p
rioriti
zeProfessionalservices
Informationtechnology
Temporaryservices
MRO
Facilities
Travel
Utilities
Key Strategies – Indirect procurement
Choose Preferred Suppliers
Focus on and influence key executives
Manage with Automation and Measurement
Set KPIs
Role of Indirect Procurement
Stronger internal controls
Better visibility into the entire process
Better communication across stakeholders to optimize decisions and strategies
Data analysis (turning raw data into business insights and intelligence)
Reduce procurement process costs
Best Practices – Indirect Procurement Indirect procurement Spend increasing in the categories of IT, marketing and advertising, facilities management, MRO, Logistics and professional services.
Indirect spending accounts for
60 percent - Third-party spend in non-manufacturing companies. 90 percent - Financial services industry. 50 percent of spend in manufacturing organizations.
COE - Center-led model of procurement, where a procurement center of excellence (COE) focuses on corporate supply chain strategies and strategic commodities, best practices, and knowledge sharing.
Central-led organization with collaboration across business units. Users of this model achieved savings greater than 10 percent over the last two years in 47 percent of categories.
Indirect Procurement
Summary To expect different results, we may need updated roadmap.
No two companies operate the same way – But all have guiding principles for success.
Best Practices are a benchmark and guide for Procurement Effectiveness and Improvement.
Company leadership expects Procurement Organizations to be more Transformational vs. Tactically focused.
Good News: Company leadership is expecting more from our Supply Chain Management profession.
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“A creative person is motivated by the desire to achieve, not by the desire to beat others”