History shows that any level of focus on Indirect Purchasing can identify significant savings Disruptive changes across many indirect spend categories have Chief Purchasing Officers refocusing on indirect spend. The biggest opportunities in next 5 years will come from an approach using both expert category managers and cloud based software as service tools.

1. New savings opportunities as a result of
disruptive changes across many indirect
spend categories have Chief Purchasing
Officers refocusing on indirect spend.
Bill Kohnen Purchasing Fundamentals
2014
Future of Indirect Purchasing

2. Summary
Organizations that focus on Indirect spend always identify
and capture some savings
Biggest Challenge is fully capturing and sustaining savings
Within the Indirect Spend there is significant disruption
taking place at category levels
Multiple viable approaches are available to companies
offering different levels of control, total cost and technology
Biggest opportunities in next 5 years will come from an
Indirect approach using both expert categories managers
and cloud based software as service tools.

3. Companies Across all Segments are Actively Seeking
Indirect Category Spend Leaders
Getting the Director is less of a challenge than getting Category
Managers with deep content knowledge
As a result companies must focus on process and technology to
optimize results

4. Examples of Indirect Categories in
State of Disruption
Category Companies Source of Disruption
Servers/Routers HP/Dell/Cisco Open Computing
Enterprise Software Oracle/SAP Cloud Based Software
Office Supplies Office Depot/Staples Entry of Amazon and
Walmart.com
Corporate Travel American Express Open booking
Web based solutions
Temp Labor Manpower
Robert Half
Viable BPO for general
functions: Accounting,
Customer Support,
HR, IT, Engineering
Legal etc…

5. Continuum of Methodologies
Internal Enterprise Hybrid Outsource
Methodology Tactical RFQs Strategic Sourcing Strategic Sourcing and
use SaaS Content
Third Party
Content
Expertise with
low operational
cost
Staff Buyers Assigned Category Managers
Indirect Manager
System Maintenance
Commodity Mangers Purchasing
Program
Manager
Tools Manual Enterprise Tool
Internal Catalog Internal System
Cloud Based SaaS Tools
Catalogs, Transaction
and Analytics
Provider
provided SaaS
tools
Technology Indirect Spend Not
Integrated with Direct
Spend Process
Old Style UI with entry into ERP
platform
Consumer like UI
Constant Maintenance
and upgrade
Seamless Integrations
Generally just
web connection
Compliance Through Site Policy and
Management practice
Policy and Catalogs Compliance through
ease of use and end
user value
Through
provider set up
Analytics Nil – Or Manual Cumbersome ERP Analytic
Tools
User friendly relevant
and real time
Reporting from
provider
Cost of
Process
Low High Moderate Moderate
Savings Low and Inconsistent Moderate and Inconsistent High and Sustainable Moderate and
difficult to
sustain after
easy items

6. Tactical Enterprise SaaS BPO
Indirect Purchasing Approaches in Practice
Today 5 years
Best Practice Benchmarks will
spark Shift to SaaS to with Hybrid
Organization Approach
Companies Stuck with
Legacy ERP Systems

7. Most Common Approach
Internally based following basic purchasing skills
Buyer Assigned Indirect as a commodity
Minimal Analytics and Integration outside of site
Not Technology Based
Will Identify and Negotiate Savings opportunities
of 30% or more
Challenge is actually capturing savings.
Often less than 50%

8. Enterprise
Strategic Sourcing Approach
Enterprise wide tool to manage indirect spend
including creating and maintaining unique
catalogues.
Often Legacy ERP system or link to it manually or
with some link
Can result in better savings capture ~ 60% to
70%
However, total costs of tool and maintenance of
catalogues can be significant

9. Hybrid Approach
Hybrid Approach Combing Internal Strategic
Sourcing with Content Included with a Cloud
Based Software as a Service Indirect spend
solution
Can optimize leverage where you have it
For other items take advantage of SaaS platform
leverage
Lower total cost with SaaS for solution and
Catalog Management
Optimized analytics for Indirect
Compliance and spend capture driven by
consumer like user interface

10. Outsourcing
Complete Outsourcing of Indirect Spend
Typically infrastructure and process cost saving of
20% - less than other categories like AP,
Customer Service
Category Item cost savings of 20%
Jury still out on comparison of negotiated savings
capture rates
Still requires management and integration of tools
for users

11. Summary
History shows that any level of focus on Indirect
Purchasing can identify significant savings
The real challenge is to capture savings on a
sustained basis
Getting a few top people to drive results like in many
areas probably produces the best results however,
that is becoming increasingly difficult and is not
sustainable
CPOs will be forced to also consider process and
technology options to optimize and sustain indirect
savings to meet their goals.