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Uncovering Hidden Opportunities and Mitigating the Impacts of Inflation in Indirect Procurement

Published September 10, 2022

Written by: Omer Abdullah
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Omer Abdullah

Omer is a co-founder of The Smart Cube and leads its business across The Americas. He also hosts The Smart Cube’s Inside Procurement podcast.

Omer has more than 25 years of management consulting, global corporate and industry experience across North America, Europe, and Asia.

Prior roles include A.T. Kearney (North America), Warner-Lambert (USA) and The Perrier Group (Asia-Pacific). Omer has an MBA from the University of Michigan at Ann Arbor, USA, and a BBA from the University of East Asia.

Follow him on LinkedIn at https://www.linkedin.com/in/omer-abdullah-32a512.

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Indirect procurement isn’t a new field. It’s been around for decades, helping to control spending and reliably source the goods and resources internal teams need to do their jobs and keep the business operational. 

But, today, it still finds itself in the same position that direct procurement was in up until a few years ago. Perceptions of indirect procurement as a cost-saving, enabling function have caused many organizations to overlook the potential value it can deliver. 

It’s an area of massive opportunity. And right now, with ongoing supply shortages, long supply chain delays, and inflation hitting a 30-year high, no organization can afford to overlook opportunities to optimize spend.

Four Big Opportunities That Many Organizations are Missing

During a recent webinar conducted by The Smart Cube in collaboration with CASME, all four speakers shared what they see as the biggest opportunities available across indirect procurement teams today that many organizations aren’t taking advantage of:

  • Sharing best practices and optimizing resource use across the business

Stepping up to offer his insight first, Mike shared how the indirect procurement team at Newell Brands has effectively become a pollinator of best practices across diverse lines of business. Using its complete view of indirect purchasing habits and spending, the team can find commonalities in needs, guide domains towards using the same or similar tooling and learn from each other to improve and optimize how they’re using resources.

  • Looking beyond basic spend KPIs to drive business value

Following Mike, Klaids shared a valuable anecdote from Schneider Electric, where his indirect procurement team had worked closely with production staff buying metal cutting tools. The engineering team convinced them to pay for premium tools, negatively impacting procurement’s spend KPIs but delivering huge value to the business. 

The premium equipment accelerated production and output, and lasted far longer than the cheaper alternatives. If you look solely at procurement’s KPIs, that was a wrong move. But it was certainly the right move for the business — generating massive value and building enterprise confidence in procurement’s commitment to providing them with everything they need to do the best job possible.

  • Leveraging indirect procurement as an internal crisis response resource

At the start of 2019, very few people would have predicted that in under a year’s time, Personal Protective Equipment (PPE) like face masks and hand sanitizer would become a strategy category for tens of millions of businesses around the world. 

Once the pandemic hit, indirect procurement’s ability to source PPE directly impacted every organization’s ability to return to business. Prices may have been high, but the teams that reliably source PPE at the right time delivered immeasurable value to their businesses — and their people. 

With the frequency and severity of crisis events increasing globally, that’s a key source of value for indirect procurement moving forward. When uncertainty and global events hit, highly responsive indirect procurement teams are a massive asset, helping to minimize the impacts those events have on businesses.

  • Looking at data beyond spend analytics

Indirect procurement teams have a wealth of data available to them today. They’re used to closely monitoring and analyzing spend across the business, but if that’s all they’re looking at, they’re missing some powerful opportunities to create value.

During the webinar, Klaids highlighted the internal data available to help indirect procurement understand how it could better serve the business. By diving into its processes and performance, indirect procurement can uncover opportunities to improve and accelerate buying — moving towards delivering B2C levels of convenience and speed to internal customers.

What’s the Impact of Inflation?

Global inflation has dominated headlines recently. So, it’s no surprise that the conversation quickly turned to its impact during our webinar. Together, the team shared three valuable tips to help indirect procurement professionals respond to, and manage today’s hugely inflated pricing landscape.

  • Understand the data first, so you know what you’re dealing with

With inflation hitting a 3-year high in some countries, Graham pointed out that many professionals working in indirect procurement today won’t have to deal with inflationary conditions like these. So, the first step towards making good decisions on mitigating inflation impacts is to understand exactly what you’re dealing with.

Fortunately, all of the data available to us today can help. Teams can look at their cost models and start to break them down to understand all of the individual drivers influencing them. Then, they can even begin to forecast what the short-term future of those drivers might look like — bringing some much-needed control and predictability to today’s environment.

  • Spend your time focusing on the things you can control

You can’t influence the price of oil. But you can optimize the amount you use — the same is true for virtually every category and service your business spends money on.

This period of intense inflation should be a watershed moment for resource allocation and utilization. By looking closely at how well you’re using the things you’re spending money on, you can not only save money and mitigate the short-term impacts of inflation. You can build more efficient processes and operations that deliver value and support sustainability efforts for decades to come.

  • Look at new levers to relieve short-term pressure

Businesses can’t stop buying the things they need just because of inflated prices. So, rather than bringing those prices down, indirect procurement needs to start looking at other levers it can influence to relieve some of the pressure caused by high prices.

Working capital is a great place to start. By collaborating closely with suppliers, indirect procurement teams can negotiate better payment terms, for example, which can help them get through the constrained conditions we’re seeing today. Keep in mind that suppliers don’t want to squeeze every dollar from your team. Your mutual survival is in their best interests, so most will be very happy to work with you in a way that helps to continue thriving and buying.

Kickstart a new era of indirect value creation

Strategically managing indirect spend is now more essential than ever. 

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