Spot buying is sometimes a necessary part of doing business. Emergencies arise, or last-minute costs come up while hosting an event. However, the danger of spot buying is that it can also contribute to a large portion of maverick spend. Even these small spot purchases can add up, increasing unmitigated tail spend unsustainably.
Many organizations lean on spot buying catalogs to help bring this spend category under control. But, data shows that spot buy catalogs don’t resolve the bigger issue: that these types of purchases need to be made quickly, with little consideration of costs or supplier vetting. Luckily, spot buying can be brought under control with e-procurement and automated sourcing solutions.
What is a spot buy?
A spot buy is a purchase that is unplanned, often considered an “emergency” or a one-time buy. Just like with any other type of spend, it is important to keep spot buys in check.
Spot buying usually includes at least one of the following defining features:
- One-off deals; usually related to some kind of an emergency. For example, someone spills water on their laptop and needs to replace it quickly.
- Low-value; smaller purchases that, if left unchecked, add up over time and eat away at your bottom line.
- Unique buys; such as last-minute purchases needed for a specific business event.
- Forgo the RFP process; spot buys are less formal and often made in a short amount of time.
Spot buy costs add up over time, and can be difficult to identify due to the fact that they rarely follow an 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. A spot buy catalog is an online marketplace that aggregates low-value deals and purchases. The goal of a spot buy catalog is to capture emergency searches, capitalizing on the fact that when companies need to make a quick spot purchase, they often won’t take the time to compare prices.
While spot buy catalogs made sense fifteen years ago, they are now seen as ineffective, costly, and a waste of time. A spot buy catalog is, at best, a tool — not a solution. Here’s why spot purchase catalogs are ineffective at controlling tail spend.
Issues with spot buy catalogs
One of the reasons why spot buying is so difficult to manage is that organizations rely on the wrong tools to bring it under control. Spot buying seems like a straightforward solution: create a library of low-value, low-dollar purchases and allow users to select from the database. However, spot buy catalogs present a few challenges.
- The process of finding an item is frustrating. Spot buy catalogs require a user to sift through an endless assortment of items before making a purchase. Catalogs must be constantly managed to make sure listings and prices are up to date, as well as include built-in filtering tools. The effort required to monitor and manage a spot buy catalog often requires hiring a position uniquely for this purpose.
- Spot buy catalogs often miss savings + discounts. Procurement teams are uniquely positioned to take advantage of volume discounts and bulk-buying. But, when items are regularly spot purchased, there’s no opportunity to take advantage of a full inventory restock. This raises costs and increases waste.
- Catalogs can lead to price creep. “Despite their intended use to facilitate spot buys at low prices, catalogs often end up coaxing users into dubious deals,” wrote the experts at SpendMatters. Someone outside the procurement team may bulk buy a spot purchase, thinking they’re getting a deal. In reality, they’re just over-buying something for which the procurement team could negotiate a better deal.
Companies are quickly starting to realize that the use of spot catalogs is outdated and risky. And, as a result, savvy procurement leaders are looking for a better alternative.
How to improve spot buying
Spot buy catalogs often make it more difficult to bring this form of tail spend under control. Luckily, there are better ways to reduce the risks and costs associated with spot purchases.
Strategic sourcing is the process of planning to ensure that the goods and services needed to do business successfully are obtained on time as needed — and on budget. Strategic procurement involves carefully optimizing everything from vendor selection, payment terms, vetting, contract negotiation, and the purchase of goods and services.
Strategic sourcing connects data collection, spend analysis, market research, negotiation, and contracting into the procurement process. Integrating spot buying into a single, integrated strategic sourcing system allows enterprises to fully capture cost savings and realize the benefits of digitizing procurement documents, participating in digital business networks, and automating workflows.
Strategic sourcing tools can convert sourcing events into requisitions that can be processed through the standard procurement procedure, bringing spot buys under the procurement team’s management. By deploying an e-procurement system, the enterprise can collaborate to 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.
Automated sourcing can be achieved through an automated procurement system that brings together supplier contracts, information, and catalogs in one place. Aggregating this information makes it easy for the enterprise to quickly buy the products it needs from vetted and pre-approved vendors.
[Learn how BT found fast value in their long tail through automated sourcing]
Automated procurement brings more spend under the management of the procurement team, lessening the likelihood and impact of tail spend. With everything in an easily accessible online location, there’s less reason for purchasers to try to find items off-contract or from unvetted suppliers.
For more insight into how your organization can improve sourcing and procurement, check out Fairmarkit’s blog, The Source.