Etiket arşivi: eauction

Indirect Spend Categories to Make Cost Reduction

Over the past five years, purchasing/supply groups in well-managed companies have made significant progress in reducing the price of inputs. Since specific direct materials are often associated with distinct Strategic Business Units (SBUs), managing this spend is usually accomplished through center-led commodity groups, with sourcing decisions and administration occurring at the SBU. Though most companies are generally satisfied with the efforts they have made in strategically sourcing their direct goods and services, most companies are still attempting to gain comparable control and results with their indirect spend.

Indirect spend is receiving increased attention from the senior management of large corporations. On average, indirect spend equals about 50 percent of a company’s purchases. Unfortunately, a significant amount of indirect spend is not purchased using the organization’s purchasing/supply function or purchasing processes. Senior management has realized that reducing or eliminating indirect spend offers an opportunity to favourably affect a company’s cost structure. Examples of indirect spend include: professional services, utilities, company travel, office products, and waste Management, facility management e.t.c However, spend that is indirect for one company may be direct for another. Furthermore, segmenting direct and indirect spend can be very difficult, particularly for service companies.

With increased outsourcing of non-core capabilities, the growth of the service sector, and increasing cost pressure, the importance of managing indirect spend is increasing.  A recent survey conducted by The Aberdeen Group recently reported that about 70 percent of procurement executives cite indirect spend as a top focus for controlling and reducing cost. Procurement executives know that indirect category management now presents a significant opportunity for cost management, gross profit and margin growth. More procurement groups now seek to drive a larger volume of contracts through their organizations. They want to manage and negotiate better rates and achieve tighter compliance with both financial and regulatory controls. And they believe that more attention to indirect spend and the multitude of suppliers in those categories can yield savings without distracting management attention from compliance or strategy.

Some of the top 5 Categories where companies can successfully achieve significant savings in indirect spend include:

Marketing Services

Marketing spend is defined as `external expenditures on services related to marketing’. Marketing spend categories usually include printing services compatible to goods,  agency/creative services, and other non-creative services,  Buying Marketing Services is often regarded as one of the highest budget areas within an organisation, hence the role for Procurement has increased considerably in recent years focusing on improving quality, delivery times and innovation.


Waste Management

Waste management is the “generation, prevention, characterization, monitoring, treatment, handling, reuse and residual disposition of solid wastes”. There are various types of solid waste including municipal (residential, institutional, commercial), agricultural, and special (health care, household hazardous wastes, sewage sludge). The term usually relates to materials produced by human activity, and the process is generally undertaken to reduce their effect on health, the environment or aesthetics.


Professional Services

Organisations often employ professional services for assistance with strategy, management, and other functional services such as legal, Human Resources etc.  Procurement can demonstrate value by providing insight to spend, supplier sourcing, realising savings and organising efficient, economical purchasing processes.


Office Supplies

Office Supplies can be defined as all items which have the objective of retaining or restoring a piece of equipment or system, to a state in which it can perform its required function. These are items which are used in production but do not become part of the end product and include hand tools, spare parts, lubricants and cleaning supplies e.t.c. They are goods acquired for the purpose of current operation; items that are consumable, sometimes perishable or short lived, and are subject to material change. They could also be items of a durable nature such as wastebaskets, small tools, bookends, file cabinets, chairs, calculators.


Facilities Management

Procurement is often involved with many of the services bought in, to support the building and people within an organisation – often referred as Facilities management (FM). FM is a significant area of spend for most organisations, traditionally defined as soft (people focused) and hard (engineering focused). Approaches for managing FM may be centralised or decentralised, either through several direct contractors or via an integrated FM supplier which provides all services.

Things Bidders and Suppliers want to Know from Buyer

So you’ve been asked to participate in an e-sourcing event. Now what?

Whether you’re new to e-sourcing or have plenty of experience, every e-sourcing invitation represents a valuable chance to help your business succeed. By participating in e-sourcing events, you can:

  • Win new contracts
  • Grow existing accounts and strengthen customer relationships
  • Gain crucial visibility with targets and prospects
  • Get a clear sense of what competitors offer and a better grasp of your market position
  • Level the playing field with sellers of all sizes
  • Hone your value proposition to capture follow-on business

Bidders/Suppliers are without doubt very essential to almost every business. Without raw materials to make what you sell or manufacturers to provide what you resell, you will have a tough time growing. There are also many supplies and services your business consumes as part of general overhead, from paper clips to Internet access. In some cases, this relationship can go beyond the usual bid and supply of goods and services you need to do business. Bidders/ Suppliers can also be important sources of information, helping you evaluate the potential of new products, track competitors’ actions and identify promising opportunities e.t.c. Suppliers can turn into partners, helping you cut costs, improve product designs and even fund new marketing efforts. Hence, selecting good suppliers and vendors should be a major part of your growth plan, and so procurers need to roll out efficient and transparent selection processes in order to attract participation from the best suppliers in the market who are most likely going to provide the best value for money spent.

It is therefore essential that suppliers understand the changes and requirements needed before moving forward with any new procurement process or technology. Allowing your supply community to adapt to and embrace the potential benefits for themselves is a sure way to a smooth implementation.

Some of the best practices to be adopted on proactive supplier adoption include:

  • Finding suppliers that are open to technology
  • Effective and open two way communication
  • Ensure that your suppliers are familiar with new processes and tools

The need for effective Communication with Bidders/suppliers cannot be overemphasised. This is will amongst many others help to curb or completely avoid supplier resistance.

Every   e-auction event should;

  1. Clearly communicate the rules of engagement at the start to all concerned and ensure to stick to those rules
  2. If changes are required, communicate openly to all participants
  3. Only allow credible suppliers to participate.
  4. Do not allow separate deals outside of the established process
  5. Inform all participants within the agreed timeframe of the outcome
  6. Unbundling of lots is not allowed unless this is clearly specified upfront
  7. Ensure simultaneous availability of information to all participants
  8. During the Bidding/evaluation process to follow the parameters of the RFQ.

We have also seen that for those categories where auctions are applicable, the use of online auctions typically bring additional savings. Auctions move the negotiation from a buyer driven competition to a supplier driven competition. In defining if a category is suitable for e-auctions, answers need to be provided to the following questions in order to ensure that bidders/suppliers are being carried along. These questions include:

  • Product/Service: are the requirements easily specified?
  • Value: is the package being considered for auction of sufficient size to attract competition for its delivery?
  • Market competitiveness: supply base, market evolution, and commodity traded category?
  • Position of the buyer in the market: Buyer/Supplier dominance in the relevant market?
  • Ease of Implementation: existing contracts still ongoing, extensive supplier certification required, etc?

Although buyers are often concerned that the auction sets up the wrong dynamic for a supplier relationship, in many respects the supplier finds the approach beneficial too. From the start the process is more clearly defined and expectations of suppliers are easier to manage. Less time is absorbed in the selling process. Suppliers are able to benchmark against their competitors and understand how competitive their bids are; and they genuinely know where they stand relative to other Organisations. Suppliers should share the same level of information on the process that is being followed and this creates a level playing field for all. Below are some of the typical questions that would run through the mind of a Bidder/supplier before choosing to participate in the process;

  • Why use an electronic E Sourcing system?
  • What do I need to access the system?
  • When are you introducing this system?
  • What do I do when a tender is issued?
  • What if I need further assistance.
  • Will I be able to return a hard copy of my submitted tender? e.t.c.


Competitive bidding has traditionally been the best option for project sourcing initiatives. More recently, spend management / strategic sourcing systems have offered a reverse bid auction process that has worked well for commodities but not so well for the sourcing of services. CPBID Technologies, creator of Total Bid, has developed a process and method for automating the bid process but also optimizing savings. To date, the Multistage Bidding platform has been used for thousands of projects representing the energy, healthcare, financial, grocery, office, education, and retail industries, saving these clients millions of dollars every year.