Does procurement really influence non-strategic spend?

March 10, 2022

Most procurement organizations are inadvertently putting themselves out of business by falling prey to a philosophy of doing more with less. We have been so hyper focused on enabling the business through self-service purchase-to-pay (P2P) tools that we may have gone too far with this philosophy.

P2P tools allow the business to buy what they want, when they want it, from whomever they want, allowing procurement to support the needs of the business in a flexible and scalable way. As a result, however, it then removes these transactions from procurement’s purview introducing unnecessary risk, disaggregation of spend, proliferation of suppliers and adversely impacts supplier diversity, sustainability initiatives because the business user is in the driver’s seat making the purchase decision.

The resultant problem becomes lack of influenceability over the tail.  The business now directly controls what they buy in the tail spend space.  Procurement organizations don’t have the resources, upper level change management support or tools to manage tail spend. Fortunately, that dynamic is changing with the advent of advanced technologies that are enabling procurement teams to extend their reach into previously untapped spend.

So, how are technologies doing this? Fairmarkit, for instance, addresses intelligent and automated sourcing events in two ways:

  1. Ingests opportunities directly from the business, utilizing conditional statements that guide the business to submit a more complete business sourcing need using natural language processing

  2. Intercepts purchase demand directly from the buyer’s purchase-to-pay (P2P) system by leveraging application protocol interfaces and robotic process automation

By leveraging Fairmarkit’s technology, we can learn from the business to identify the best qualified suppliers and then quickly run a tender soliciting bids, comparing results and even auto-awarding the opportunity based on pre-configured rules.

So… why hasn’t procurement adopted the technology? Procurement tends to be a laggard when digitizing their operating model.  According to Gartner, only 22% of procurement organizations can be considered world class when it comes to technology. While the technology is available, procurement just hasn’t availed themselves of what is currently in the marketplace.

Why?  Some procurement leaders are skeptical, some don’t have a budget, and some haven’t experienced a compelling event forcing them to manage tail spend.  There are a number of examples where tail spend introduces unacceptable risk. Two that stand out;

  1. A large retail store implements a remote HVAC monitoring solution allowing a 3rd party to remotely manage heating/cooling of stores. The purchase was considered low dollar value and was simply transacted, absent of any scrutiny from procurement. The remote monitor allowed access to the store’s database, resulting in major credit card information theft.
  1. A large casino wanted to monitor the water temperature of a large fish tank on the casino floor. This allowed a 3rd party to put an unsecured internet based water temperature sensor on their network, presenting a perfect opportunity to siphon cash through the casino and get access to high roller information.

Both of these are examples equate to low dollar purchase transactions that were not managed by procurement, simply based on their dollar value, which opened up these businesses to extreme financial & reputational risks and revenue loss.

In fact, I’d argue that procurement can do more with less, especially since technology doesn’t always require additional headcount. Yes, headcount and headcount related costs such as benefits, facilities, training, etc. are the number one budget item in most budgets. By implementing a best of breed solution with an ROI that exceeds 10x and payback in a few months, Procurement can deploy advanced technologies like Fairmarkit that support the philosophy of doing more with less.

The Fairmarkit platform helps Procurement influence the tail to mitigate reputational, data and financial risks and liabilities in a scalable, efficient model.  Fairmarkit is encouraging Procurement to take up the challenge to manage their tail spend and embrace the philosophy of doing more with less.

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