Before we get started it’s worth pointing out that there’s really nothing wrong with spot buying in procurement. Sometimes the situations we find ourselves in, or the way the market behaves, makes it completely unavoidable. A few purchases here and there for those exceptions aren’t likely to break the bank.
The key word in that sentence is ‘exceptions’. A few (hundred) dollars’ worth of unplanned spend is probably ok, as long as your procurement strategy accounts for the requirements so they’re not unplanned in the future. The issue lies where unplanned spend becomes the norm and a few dollars here and there mounts up into a hefty bill.
Issues with Spot Buying
Spot buying is a reactive approach that means something has been missed, or isn’t covered, under your procurement strategy or strategic sourcing plans. This could be attributed to changing market conditions, purchases required just to keep the wheels turning, or potentially a lack of good communication on actual requirements between procurement and end users.
A number of organizations use spot buy catalogs to cover these requirements. The problem with spot buying is that it is nearly always a rushed or hasty purchase. Wherever you have these one-off or emergency requirements that are time-sensitive and should be relatively low value, there is a concern that the low price isn’t as low as it might be.
In some cases, in order to ensure that requirements are met, organizations issue purchasing cards (or p-cards) to employees for those snap purchases. Used correctly, p-cards can enable savings, rebates and discounts, as well as pay suppliers faster.
But with spend on p-cards reaching an eye-watering $350 billion per annum, there is a definite argument that procurement should strongly consider bringing this spend back under contract and aim for cost reduction and consolidation.
Getting Out in Front
Making a difference in this field is not an easy fix. Human beings are naturally resistant to change and you might find it’s easier to take candy from a baby than to pry a p-card out of the hands of someone who is very accustomed to using it.
There are some positives though. Firstly, the problem is not an insurmountable one. Much like tail spend and maverick purchasing, a more structured and managed approach can assist with the creation of savings and a reduction in the overall value of the spend itself. Secondly, the solution can be helped by getting out in front of the problem with a bit of research.
‘Unplanned’ by its very nature is reactive. What procurement needs to do is:
- Understand where the spend is being made
- Find out if there are any repeat offenders or recurring requirements
- Formalize a more proactive approach which can then be added to procurement’s strategic buying activities.
Leveraging Procurement Solutions
There are a couple of key factors in creating a proactive approach to unplanned spend – good data/data analysis and expert knowledge on how to apply this. For many organizations, the first step is going to be the hardest. Spend analytics are one thing, but the data output is only as good as the data input. If there is resistance to change and a lack of communication from those making the unplanned spend, then no level of data analysis is going to help.
If you are fortunate to wield sufficient power in the organization to mandate assistance, or you have a centralized procurement approach, this may make things easier. Once you have done this, then leveraging high quality procurement solutions to assist with the data analysis can give you something tangible and, more importantly, useful to work with.
Ultimately though, you may need to look for external help in the form of procurement consulting or experts. This is where Group Purchasing Organizations (GPO) like UNA can help. Not only do they operate with high quality software, but they have the expertise to leverage the output to the benefit of your procurement function.
This can help to take the strain off your resources, leaving your team free to do their job more effectively and focus on their own areas of expertise, rather than trying to cover too wide an area. Remember, by making unplanned spend part of your future plans, you can help to make it a thing of the past within your organization.