May 17, 2020

How to control your global indirect spend in 6 steps

Supply Chain Management
SCM
Admin
6 min
However well matured the procurement function may be for the direct spend, quite often the opposite is true for Non Product Related (NPR), or indirect spend.
However well matured the procurement function may be for the direct spend, quite often the opposite is true for Non Product Related (NPR), or indirect s...

However well matured the procurement function may be for the direct spend, quite often the opposite is true for Non Product Related (NPR), or indirect spend. The effort made is genuinely less coordinated and less procurement expertise is available to support budget holders with sourcing strategies and in-depth internal and external market analyses for subjects like ICT, facilities, HR and marketing spend.

International trade provides synergy advantages regarding pooling volume, standardization, supply integration and sharing best-practices, which allows access to new ideas and technologies. Everyone will no doubt agree that having the best conditions or the best access to suppliers creates a competitive advantage for the company. Centrally coordinated policies and processes provide the foundation for obtaining such conditions. As a result, Global Lead Buyers, Global Sourcing teams and International Supply Managers have become common roles for managing the direct spend within international companies. 

This leads to the following interesting question: why don’t budget holders get similar support for indirect spend and why aren’t companies managing their NPR spend as carefully as their direct spend? Obviously, NPR spend doesn’t come close to the value of the direct spend, but on the other hand, it might well be the low-hanging fruit that leads to quick and significant cost savings. Additionally, an organised internal demand ensures a professional approach towards the supplier market.  

This article contemplates the question of whether an international company should apply centrally coordinated procurement practices to the Non Product Related Spend or whether to organise this locally.

Volume pooling & standardization

Normally, you don’t need extended project teams for NPR purchasing or engineering of specifications. As a matter of fact, you hardly need any considerations of customer requirements and rarely need direct involvement from ‘business‘ stakeholders at all. Close collaboration with the budget holder is sufficient. At the end of the day, do the engineers, salesmen or production managers really care what kind of pen they write with, who cleans the offices, or which cell phone provider they have? The answer is simple. No, they don’t. They do, however, care that it is available, that the job is done well and does not interfere with day-to-day operation.

Why is it then that many companies allow their local managers to be occupied with acquiring facilities and contracting all kind of goods and services? This only results in hundreds of suppliers and dozens of varieties for similar products & services.

Volume pooling and standardization by implementing central frame agreements seems like a proper solution. Fewer suppliers to choose from and less people occupied with arranging this indirect spend sounds like a relatively simple objective to be achieved.

How does one identify typical NPR product groups that will benefit from international sourcing, international markets, volume pooling and standardization and how does one define which spend is better off being sourced locally?

Step 1: Spend categorisation

It is recommended to start by categorising all indirect spend into a standard set of spend categories, commodities & product groups. Spend will be categorised into Facilities, ICT, Marcom, HR related and Professional services. Examples of typical product commodities or product groups include office supplies, international transport services & courier services, multifunctional printers, mobile phone providers, and professional services such as financial and legal advisors. 

Step 2 & 3: Spend impact & ownership

What are internal and external considerations for starting an international coordinated tender process?

The financial analysis identifies if one or more categories have a significant value and impact. An important precondition to consider is the presence of at least one budget holder for whom there is something at stake.

If you miss significant importance for any entity, you might struggle to find any ownership to bring it forward. Lack of this importance and ownership is a defensible argument to have the requirements arranged locally.

Step 4: Create standardisation

After having identified spend categories with a significant value with one or more motivated stakeholders, the next step is to consider the homogeneity of the required products/services. A homogenous product or service typically benefits from setting a standardized specification and then combining the volumes. Alternatively, if the product/service within the company seems to be heterogeneous, the external market analysis might result in a homogenous alternative that creates standardization and hence options for cost reduction.

Step 5: Supply market analysis

Are suppliers able to offer and support internationally coordinated framework agreements? The external analysis also answers the question as to which extent the supplier market is developed and provides insight into organisational structures of suppliers. Some examples of indirect spend that will realise savings by implementing international frame agreements include office supplies, courier services, multifunctional printers, ICT spend, mobile telephony, insurance and financial audits & advice (the big Four).  

If the spend category at stake consists exclusively of services, local people are per definition involved. Central coordination of services doesn’t always make sense (think of language and cultural differences). International companies providing global or European services do exist but these commonly direct the people locally and are decentralized. It is recommended not to select such multinationals precisely because of that ‘one brand’. Procurement professionals carefully judge if the size and the working processes of a supplier suit their own organisation and its specific requirements. Within the examples of cleaning, catering, marcom and professional consultancy services, there are plenty of examples to be found with little or no international leverage. For the majority of the smaller and midsize specialists, there is no significant international market place. Such companies operate, compete in and add value to local or national ground.

Other examples of spend categories that are less likely to be combined include fuel for cars and temporary labour (flex labour). As far as the fuel example is concerned, countries have their own market leaders and few brands have a dense presence in multiple marketplaces. 

Driven by significant differences in rules & legislation and the reliance on a network of people, most temporary labour suppliers operate on a national or even local level. Obviously with the exception of the multinationals in this field, but in this case you need to consider the discussed organisational fit. 

Step 6: Category strategy

In sum, applying coordinated procurement practices on NPR spend yield quick savings and efficiency but is not achieved by just pooling volume and implementing international frame agreements for all spend categories. Although it seems as if sourcing NPR categories is less complex compared to direct materials, key success factors include strategies per spend category and the availability of procurement specialism. The strategy is based on detailed evaluation of whether or not an international approach is feasible for the organisation. The procurement specialist guides the budget holder(s) with in-depth market knowledge and purchasing experience to make the correct and most sensible choices.

 

The author Eric Schouten, is Senior Procurement Consultant at Emeritor. www.emeritor.com 

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Jul 30, 2021

The Ultimate Procurement & Supply Chain Event

Procurement
Supplychain
live
event
3 min
Take a look at our agenda for Procurement & Supply Chain Live, where innovation meets implementation, coming to you live from London

From September 28th-30th, network with C-level executives, gain insight from industry pioneers and walk away with actionable insights that accelerate your career. By the end of the week, we promise you’ll have the skills to solve the world’s most pressing supply chain and procurement challenges. 

The three-day show is an essential deep dive into the industry, with influential speakers sharing insights and strategies from their organisations, group roundtable discussions, and fireside chats. Whether you attend virtually or in person, you’ll strategise how to cope with global disruption, learn from industry leaders, and walk away with tips, tactics, and tangible connections. 

 

How to Attend

 

In a COVID-disrupted era, we know that the majority of people would rather avoid travelling for events─why take the risk, right? In response to the continued disruption, BizClik Media Group has decided that Procurement & Supply Chain LIVE will offer the best of both worlds through hybrid accessibility. 

That means you and your peers can attend the event in person or virtually ─ with no disadvantages for people who choose not to make the trip to the Tobacco Dock venue. 

 

In-Person

 

Procurement & Supply Chain LIVE will be held at the Tobacco Dock in London, an industry-leading venue that is renowned for delivering world-class events. For attendees’ peace of mind, the venue is working to the government-endorsed AEV All Secure Framework, alongside mia’s AIM Secure and ‘Good to Go’ accreditation, they will ensure that we achieve a COVID-secure environment to facilitate all of your networking needs. 

 

Virtually

 

Our physical venue is both historic and stunning, but it has no bearing on the information that you and your peers can gain from the event. You can still absorb it all, interact with other attendees, and enjoy the conference experience on your alternative, virtual platform. 

The platform will feature live feeds from all of the stages, as well as virtual networking areas. So, if you want to avoid travel, it’s not a problem! You can still get involved and enjoy the entire experience from the comfort of your own home. 


 

What’s on the agenda?

 

With keynote addresses from global leaders, dynamic roundtable discussions, and extensive networking opportunities, Procurement & Supply Chain 2021 will expand your network, deliver insight, and enhance your organisation’s reach. 

Across the three-day event, a number of relevant topics and trends surrounding procurement and supply chain will be discussed. 

 

  • Tuesday 28 September - Digital supply chain
  • Procurement strategy (11:30 am)
  • Supply chain leaders forum (12:00 pm)
  • Women in supply chain (14:00 pm)
  • Procurement technology (14:30 pm) 
  • Wednesday 29 September - Procurement consulting
  • Sustainability (11:30 am) 
  • Supply chain management (12:00 pm) 
  • Digitalisation (14:00 pm)
  • Risk & Resilience (14:30 pm)
  • Thursday 30 September - APAC sessions (04:00 am)


 

Influential executives from around the world will give their insights and professional experiences surrounding these topics, allowing you and your company to leave with valuable information. 

The past year has shown how important supply chains are and the importance of managing them correctly. With increasing digitalisation across all industries, you won’t want to miss out on our great speakers and information surrounding this topic. Preparing your company for the future is key, and we are sure you will gain great insights at our three-day event. 

Order now to make the most of our early-bird offer. Ticket prices increase over 50% soon! For tickets and information, head over to our event site.

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