In a recent post here, we wrote about the difference between direct and indirect spend, and shared some of best practices for effective direct spend management. Many procurement teams (and professionals) get their start managing indirect spend categories such as office supplies, equipment and back office services. However, the opportunity to step up and impact enterprise profitability by getting involved with direct spend is too good to pass up.
Since procurement is a constantly evolving function, any new categories of spend we gain access to become proof of our latest and greatest spend management strategies. Here are three transformational procurement trends that are likely to shape the future of direct spend management:
Direct and On-Demand
Gone are the days of managing spend with a “set it and forget it” approach – a long sourcing process followed by 3 to 5 years of consistent, predictable purchasing off a contract with only minor changes. Companies that are responsive to customer demand have the greatest chance of increasing their market share. This requires a procurement team that supports both the distributed sourcing capabilities and distributed purchasing. By allowing direct spend decision-makers to bid out smaller, market responsive designs on their own, procurement can empower demand fulfillment and decision-making that align with responsible spend management principles. Perhaps even more importantly, we can do so without being overly controlling or sacrificing centralized oversight.
Partnering for Progress
Legacy technologies – of which ERP is a prime example – aren’t just slow and cumbersome. They also have a tendency to hold supply partners at arms’ length. In an era where strategic, collaborative relationships are a primary source of competitive advantage, procurement can’t be associated with processes and practices that insert space between the company and their direct spend suppliers. Procurement can improve the effectiveness of key supplier partnerships by applying relationship management experience to direct spend. Our proven frameworks for managing performance and facilitating collaboration provide much-needed structure for partnerships that make top line growth possible.
The majority of business practices today trend towards real-time flexibility. This includes purchasing. If purchasing managers identify a need while on the shop floor, they shouldn’t have to wait until they get back to a desk or terminal to engage a supplier. Not only does this create an unnecessary delay in the fulfillment process, it increases the risk of errors or even stock-outs if things get busy and supply orders are lost or forgotten. With mobile capabilities, direct spend demand can be addressed in the exact moment and in the exact place the materials are needed. Mobile eprocurement increases employee satisfaction, efficiency, and visibility.
Procurement often thinks of the difference between indirect and direct spend as the bottom line versus the top, driving revenue as opposed to profit margin. When procurement gets involved in the management of direct spend, the upside includes greater supplier consistency, lower supplier risk, and increased supplier transparency.
The most significant procurement opportunity associated with direct spend is that it brings us into closer contact with the company’s customers. In fact, the future of direct spend management should dictate the future of procurement as much as procurement influences the future of direct spend. We must become more customer centric in all ways – and in our approach to all categories of spend.
Every dollar the enterprise spends should create value for the customer. The strategic status automatically attributed to direct spend means it is imperative for procurement and the business to manage it cooperatively.