Let’s face it: Every organization needs to deal with a fair amount of spot buys, and most procurement leaders would like to gain a better handle on this type of spending. Unfortunately, because emergencies or unplanned events often require unexpected purchases, it’s impossible to eliminate these expenditures entirely. There are ways to curb spot buying, but the old means have become increasingly less effective. In this age of e-commerce and digital procurement, one thing seems clear: the traditional spot buy catalog is no longer a useful tool in the modern procurement department’s toolkit.
Spot buy purchases are never part of an organization’s long-term plan. They are typically one-off deals, often made in reaction to unforeseen circumstances. Many organizations around the world have made spot buys this year as a result of the coronavirus pandemic. Think of all the laptops companies bought their employees after the Covid-19 forced everyone to work from home. Those were spot buys.
Spot buy costs add up over time and are often hard to identify since they are less formal and are rarely part of any RFP process. Around 40% of an organization’s direct spend is from spot purchases.
Historically, online spot buy catalogs helped companies manage costs by providing a wide range of items and offers in one place. But such catalogs are no longer useful. At best, a spot buy catalog is a tool, not a solution. With the advent of strategic and automated sourcing, using spot buy catalogs has largely become a waste of time that misses obvious savings opportunities. Here’s why.
Strategic sourcing connects data collection, spend analysis, market research, negotiation, and contracting into the procurement process. Its main goal is to leverage a single, integrated system to enhance profitability by digitizing procurement documents, participating in digital business networks, and automating workflows. But using spot buy catalogs places your procurement activities outside of these systems, which means you won’t reap the savings or benefits of strategic sourcing.
Yet spot buys don’t have to be outside of your strategic sourcing efforts. Instead of using spot buy catalogs, firms can use e-procurement systems to connect with sourcing tools to find items. For instance, SAP Ariba has a spot buy capability that lets users search for and buy non-sourced goods within the SAP Ariba network. SAP’s spot buy offering is a business-to-business marketplace that suppliers can use to find customers, increase sales, and increase revenue.
These tools can convert sourcing events into requisitions that can be processed through the standard procurement procedure, thus bringing spot buys under procurement’s management.
Using e-procurement systems connects all stakeholders and buyers within an organization. Such platforms promote collaboration throughout the sourcing and purchasing process and help ensure the right supplier, products, and services are used—and meet the requirements of all stakeholders involved—even when the transaction is a spot buy.
An automated procurement system puts supplier contracts, information, and catalogs all in one place, making it easier for stakeholders to buy the things they need. Everything is in an easily accessible online location, so there’s less reason for purchasers to try to find items off-contract or from unvetted suppliers.
Automating procurement brings more spend under the management of the procurement team and lessens the likelihood and impact of a more endemic problem that all procurement teams face.
Spot buys are part of a broader procurement challenge known as tail spend—the money a company spends on purchases that account for roughly 80% of total transactions and 20% of the company's spend by volume. Tail spend can include anything from maverick spend to misclassified purchases.
Fewer spot buys—off-contract and non-catalog purchases—will reduce tail spend and allow the procurement team to manage more activity.
Spot buying can seem like a small problem, but it’s a big challenge for procurement teams. And while spot buy catalogs might seem like the solution, they often just exacerbate the issue and make it more difficult to bring this form of tail spend under control. Instead, the answer to the spot buy conundrum is strategic sourcing, backed up by automated procurement.