Don’t Be Traditional With Your Spend Management Thinking: Part 1

For many Sourcing organizations, especially those at mid-market companies, being involved in Strategic Sourcing of Indirect Spend categories is still a relatively new opportunity… and a challenge!  Many manufacturing companies, which have historically had sourcing organizations focused on Direct Material and Capital Equipment purchases, may not have the internal staff or correct Subject Matter Experts (SMEs) to get involved in negotiating and managing indirect expense categories.

In fact, sourcing organizations may not even exist at some companies, namely those in financial services or other service industries. However, with companies that do have established Sourcing organizations, the available resources are typically focused on the largest spend categories. As a result, many smaller spend categories go unaddressed.

So, what can sourcing organizations do to help get more areas of spend under control?  To start, non-traditional expense areas can often be identified through spend analytics.  Once identified, various options exist to address those spend categories, including sourcing services companies and various GPOs.

In many companies there are also internal  “battles” over certain spend categories that are traditionally considered “off limits” to sourcing organizations, such as:

  • Human Resource categories such as Health and other Employee Insurance Programs, Rx Drug Benefits, Employee Relocation Services and Household Goods Moves costs
  • Telecom, Datacom, and other IT categories
  • MRO – Maintenance Repair Operations
  • Marketing Expense Services
  • Insurance Policies for Property and Casualty coverage
  • Energy – Electricity, Natural Gas, and Fuel
  • Transportation and Logistics
  • Legal services
  • Travel Management Services and Costs

Many of the above unaddressed or so-called “non-traditional” sourcing spend categories are negotiated and managed by other business unit leaders. While these leaders often know what they need, they may not know industry market pricing nor have the skills and tools required to get the best deal possible from potential suppliers. Stay tuned for Part 2 when we will cover the skills Sourcing pros need for providing a high level of influence and performance in non-traditional spend categories.

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