As inflationary pressure continues, companies are experiencing cost increases across indirect spend categories; from labor-linked categories and commodity spend to software and data contracts, suppliers have consistently been requesting price increases. Rising prices negatively impact long-established supplier relationships, pushing procurement teams to quickly source for new suppliers or negotiate new terms with the ones they have.
At the same time, procurement teams are also dealing with more traditional challenges. “Typically, we find that procurement is under-invested; teams are under-resourced and have not been able to invest in tools, technology, and access to data. As a result, business users are not engaging with procurement and are instead ordering from non-preferred suppliers or over-ordering because they don’t have good access to data that would support demand management or other reduction strategies,” states Jo Seed, chief operating officer of LogicSource.
Procurement teams are constantly working to consolidate their spend, negotiate deals, and have orders go to preferred suppliers. Still, they can’t get to everything — and it frequently doesn’t happen quickly enough. Says Seed, “Increases are coming in, and the first place the phone rings now is the procurement team, and it’s, ‘Hey, what can you do about this?’”
Despite these challenges, there is a sustainable way forward that doesn’t involve short-term measures like headcount reduction or price increases. However, it requires a change in mindset to drive lasting change across all levels of the organization. This sustainable path to profit improvement and streamlined operations lies within a company’s indirect procurement function.
Indirect procurement refers to the procurement of indirect goods and services and can equate to up to 20% of an organization’s revenue. It includes categories like marketing, IT, facilities, logistics, corporate services, information technology, and packaging, across which organizations typically don’t have the resources, focus, and scale for best-in-class buying.
Business leaders often consider indirect procurement as a sunk cost, or “the cost of doing business.” Some companies even ignore it entirely and let this spending go unscrutinized by individual departments across the enterprise. Where a dedicated team does exist, it is typically not equipped with the technology required to manage this base of spend effectively. Leadership instead tends to allocate money, resources, and technology to areas that drive top-line growth while neglecting the less glamorous work of procuring indirect spend categories. However, this is precisely where companies can drive material cost reduction to reinvest in their strategic priorities.
Seed also notes that “supply chain” and “procurement” have become household words during the current climate of supply chain issues. Add to that the challenges brought on by inflation and discussions about procurement professionals and solutions have quickly become top of mind for many organizations.
“Today’s environment is driving awareness of how procurement can help reduce costs for organizations,” Seed observes. “We get excited about it because it’s what we do, and we see material bottom-line value that we can create for our customers.”
This is where the OneMarket technology platform, powered by LogicSource, comes in. It leads the way in helping to solve these problems, with modules encompassing the source-to-contract lifecycle that enable procurement teams to:
“Those are all things that are squarely aimed at making people who are underfunded, under-resourced, and overworked more effective and give them easier access to the information they need to be able to manage their day-to-day,” says Seed.
With OneMarket, procurement teams can consolidate, rationalize, and negotiate the best price at every level of buying, proactively reducing costs. They can also partner with LogicSource’s category experts who provide market intelligence, analyze pricing trends, and identify sourcing opportunities to help improve ROI and outcomes.
A high-performing, well-funded, and well-resourced indirect procurement team will continue to make better buying decisions, negotiate better deals, and nurture better supplier relationships. It is a more sustainable option in the long run and gives companies the stability and the competitive advantage needed to thrive in an inflationary environment.
OneMarket, powered by LogicSource, is a fully integrated platform created for procurement professionals with one goal in mind: to help procurement teams elevate their impact and visibility as true partners tangibly contributing to a company’s organizational success. Click here to find out how you can use OneMarket to optimize your indirect procurement initiatives.