thanks to the rise of cloud based marketplaces
The number of employees procuring outside of any formal procurement structure is increasing. This increase driven by the many marketplace services available in the cloud and the ease of purchase and familiarity of these Marketplaces.
These Marketplaces are typically not sanctioned or reviewed or checked against organisation policies. Plus, procuring through these, often results in purchases not being allocated to the correct budget codes and increases the spend that is effectively out of control.
Also, of increasing concern, this can include purchases by people hired to provide various services across the business (these costs hidden within project budgets or expense codes.) Effectively obscuring the supply chain from Procurement. With 44% of workforce spending external to the organisation, according to a recent Oxford Economics report, this is not an insignificant contributor.
There are many of digital marketplaces that are making it easier for the end user to procure a range of products and services (e.g. Amazon, Alibaba and eBay.) In fact, these services are increasingly targeting users within businesses.
This increase comes at a time when there is a focus on ethical and green supply. So, not only is this spend lacking in any visibility, control or savings focus, it is also open to question as to the compliance to ethical and green initiatives of an organisation.
This is not your typical Maverick spender profile. Now everyone in your organisation has the potential to become a Maverick spender.
2: Procurement the barrier to doing business
The common excuse for using these Marketplaces is that procurement is seen as impeding progress: the purchase process just takes too long or interferes with preferred supply routes. The employees find a way to work around Procurement to achieve their business and project goals.
Or, the user believes that they are getting a better price for goods and services and see this as helping the organisation.
It’s easier and the prices are low – why would I not use a Marketplace?
3: Poor governance structure
Governance is also a factor in use of Marketplaces. Where the roles are not clear and the governance is ineffective managers may just go ahead with their own procurement function within their project, local office or business unit.
In some cases, Governance may be in place, however a manager chooses to ignore this and proceed with their own approach.
4: Many organisations are decentralised
Many companies are decentralised and indirect spend is spread across departments and projects. There is typically little input from procurement on where or how to purchase.
Usually in these organisations a policy of procurement centralisation has isolated Procurement from the global teams.
A remote office may engage with a local Marketplace for cultural or language reasons or use a global one that is perceived as easier to use and quicker to supply.
Plus, Marketplaces are able to gain access to local employees with targeted campaigns or offers to purchase larger quantities at lower prices. Removing Procurement oversight on decisions to buy stock and any chance to lever purchase volumes.
Consolidating purchases across many offices is also made difficult by this use of Marketplaces. The same items being purchased across multiple offices at different prices and from different suppliers. Yet. there is no visibility of this activity.
5: Large programs/projects operate separately
Large programmes and projects can often be separated from the day to day operations of a business. This separation can result in project specific processes and systems being set up to address all aspects of the project. This can include procurement of goods and services related to the project.
Use of Marketplaces in this context may be seen as a simple way to set up procurement of goods and services for the project team. It may also be an approach that has been used on previous projects and become normal practice for any new project.
Large programs and projects also use a significant amount of temporary staff who may not be familiar with company processes and procedures. These temporary workers may encourage use of Marketplaces.
6: No visibility of the impact of Maverick spending
By its very nature, Maverick spend is not visible. It is covered by credit cards, hidden in project spend or expense accounts.
Particularly in the case of Indirect Spend it is hard to track:
- Indirect spend is often very difficult to understand. Indirect purchases are often made off any formal supply contract. Therefore, opportunities to lever spend are missed.
- In addition, spend data is typically incomplete and not coded to the correct commodity or category. Making any spend analytics activity useless.
- Purchase orders are either not created or if they are created descriptions are vague or inaccurate. Sometimes these POs are even created after an invoice has been received.
7: Marketplaces will continue to grow
Whether it is time, perceived benefit to the company or just plain ignorance the fact is that spend through Marketplaces will continue to grow unless action is taken.
8: How to address this issue
Key points to address:
- If your employees rely on digital catalogue solutions to buy, then you have to have a digital procurement solution that effectively levers catalogues. Create a catalogue procurement environment that the employee finds easy to use and can relate to from personal experience of using online Marketplaces.
- It is not sufficient to just automate ordering to achieve a quicker quoting and approval process. It is essential to address the user experience and mimic the online catalogues that are competing for user attention.
- Include within the catalogues an RFx function. To allow users to request non-standard items or changes to standard items that they require.
- Automate the sign off process for appropriate spend levels of individuals and managers. To mimic the ability to buy on credit cards and claim through expense processes.
- Invest in a system that is user centric and that can integrate to your current systems.
- create your own Catalogue environment and put in place Governance structures and control processes.
- ensure that your supply chain, across all goods and services, is both ethical and green.
- create temporary marketplaces for projects.
- promote green and ethical suppliers.
- focus on local or SME supply initiatives.
- Get visibility and analytics for all spend categories and suppliers.
You just have to adopt a platform that is designed to make buying easy for the user and not just Procurement. A platform that is flexible and offers process and supplier control that is invisible to the user. A platform that is not about replacing systems, but about enhancing your current systems and processes from a user perspective. You just have to think Claritum.
See our case studies on how our customers are leveraging Catalogues