What steps should be taken to optimise indirect procurement?

Number of stakeholders and a highly complex area to manage: A structured approach should be taken to identify the areas that can deliver significant savings and change the way in which enterprises manage their indirect procurement. The following four key areas should be considered to transform current indirect procurement practices into those that will yield the envisaged cost saving benefits:

Classification of spend data Spend data should be analysed to create a spend portfolio. The spend portfolio should identify the amount, category and suppliers where the spend occurred. A master list of spending categories which will be addressed in the cost saving initiative should be developed.

Identifying saving opportunities

The opportunity levers for both demand and supply should be examined to identify and prioritise significant savings in a structured way. The biggest and most sustainable opportunities are usually demand driven. Each opportunity should be prioritised for ease of implementation and financial benefit. This will allow opportunities to be pursued in waves. The prioritisation should consist of two phases. The first phase is the identification of potential savings in a particular spending area. This includes identifying savings that can be implemented immediately as well as the longer term initiatives. The second phase entails the identification of opportunities which will assist to rapidly establish the legitimacy of the initiatives. These are less complex and possibly small pay back projects such as car rental and hotel agreements. The more difficult and potentially higher payback potential projects should be implemented in the longer term.

Designing of a short and long term implementation plan

A critical element in the implementation of the indirect procurement cost saving initiative is a robust implementation plan. The plan should include agreed goals, roles and responsibilities across the organisation. It is important to keep in mind that the plan should involve both the procurement function as well as the departmental budget owners. The procurement function can influence the supply driven opportunities. However, the most significant opportunities are influenced by the way business is transacted in a specific spending category. It is therefore imperative that departments alter the way in which they spend their budgets. Control measures should be implemented to ensure that the cost saving initiatives are adhered to.

These include, amongst others:

• A process whereby departmental budgets are reduced to reflect savings from the revised indirect procurement strategy.

• Technological control measures which:

• Prevent certain categories of purchasing

• Invoke penalties for these categories of purchases

• Enable an approval or check and balance system.

Implementation of a monitoring system (continuous cycle)

The value of the savings and compliance to the revised procurement process should be measured and reported on. A reporting methodology should be implemented which tracks the savings made and assists business in identifying areas where improvement is required.