'Indirect' Procurement has a very 'Direct' Impact on Customer Experience...

Confession:

In past, every time I thought about procuring Indirect goods & services, I would think of buying paper cups, coffee machines and cleaning services. I always looked at it as a necessary part of a Procurement function but candidly speaking never thought it is as cool or as strategic as procuring direct goods until I joined retail industry in recent times. Partly it was my naivety, as I did not know better, partly it was the industries I was part of where Indirect Procurement was seen more as a side-gig and partly because I had not come across an Indirect Procurement team that could have convinced me any other way. Glad to admit, I know better now.

What is Indirect Procurement?

Have you been to one of our stores? Our ‘exterior signs’ help you navigate to our stores. You park car in our neatly ‘maintained’ parking lot. Once you enter, one of our employees wearing ‘uniform’ greets you. You pick up a ‘circular/coupon book’ before walking into the store. Various ‘interior signs’ help you navigate through isles where goods are stored on ‘racks & fixtures’ and various offer ‘labels’ help you decide what you want to buy. Then you walk to pick up photos that one of our ‘printers’ has printed for you. Post that you head to the ‘enclosed booth’ to get your vaccine before heading to pick up your medication. The pharmacist hands you over your medication in ‘bottle' along with 'prescription print'. Once you arrive at the counter to check out you choose your mode of payment, enter your ‘rewards number’ and swipe your card into a ‘machine’ which generates a 'receipt & coupons' for you.

In this example – except the actual goods you are purchasing – everything else that defined your experience during your visit is classified as indirect goods & services. Such goods & services (including but not limited to) are not for resale BUT they define your experience while you are shopping in our stores. So essentially;

Indirect Procurement is focused on buying goods &/or services that do not directly affect the feature or characteristic of the product being sold but certainly affect the customer (external & internal) experience.

Indirect Categories include Professional Services (Consulting, HR&Benefits, Travel, Financial Services, Payment Networks, Consumables), Marketing (Market Research & Insights, Media, Creative Agency, Production Services, Digital Marketing, Print & Paper), Property (Construction, Fixtures, Energy, Waste Management) Logistics, Supply Chain (Fleet Mgmt, Distribution Center Mgmt) & Information Technology (Software, Hardware, Automation, Cloud, Digital Services).

Why is Indirect Procurement Exciting??

1.????Eagle Eye View – Indirect Procurement is best positioned to get a clear understanding of where business is headed since all initiatives, which need a vendor support – Indirect Procurement is involved right upfront. Especially when a merger &/or acquisition is on the cards – role of Indirect Procurement becomes of a paramount importance. There is hardly any function Indirect Procurement does not serve and collaborate with. Most of the projects are different from each other making you appreciate the wide impact you have throughout the organization.

2.????Customer Centricity – Indirect Procurement is supposed to be a value - centric function where cost reduction is not the only priority. Customer experience is of utmost importance and convenience of the customer (internal & external) has more weightage than just saving costs.

3.????Top Line Impact - Customer can get the same good, product, medication from anywhere but what defines their loyalty to a particular store &/or website is their experience before & during their visit. Indirect goods & Services play a huge role in bringing the customer back to the stores/website, which directly co-relates to revenue generation & affecting the top line.

4.????Bottom Line Impact – Indirect Procurement drives Opex & Capex savings via spending lower than the budgeted money. The idea is to save from the get go and is much more proactive in nature if managed well. Along with improving the Working Capital; Indirect Procurement also works on many “right thing to do” scenarios, which result into savings that might be hard to quantify but are real.

5.????Corporate Social Responsibility (CSR) – Indirect Procurement takes the driver seat when supporting an organization’s CSR agenda. Indirect Procurement has to identify and partner with the suppliers who will offer goods and services that will be eco-friendly and healthy.

6.????Policy Ownership – Indirect Procurement is responsible for driving the purchasing policy (& be in the driving committee for other internal policies) of the organization. Defining Do’s and Don’ts and governing how organization is purchasing goods & services.

7.????Employee Centricity – Indirect Procurement serves its employees. From the furniture to cafeteria food and from clean rest rooms to benefits/insurance that is bought for employees; Indirect Procurement is there. The feeling of improving day-to-day experiences of our own employees, which directly results into higher motivation levels and more efficiency in their service levels, is satisfying. Ultimately that results into the end customer getting the experience they deserve.

8. Business Leadership – Telling a supplier that they are wrong is easier compared to telling a Corporate Officer from your own business. However, Indirect Procurement has to courageously take that stance when needed and be ready to negotiate & coach internally keeping bigger business interests in mind. It could certainly create some angst but also underlines the importance of this function within a business.??

Why is Indirect Procurement Challenging?

1.????Bandwidth – The purchasing needs of an organization are unending and it is hard to stay involved in ‘every’ bit that is going around. Being reactive is more often a possibility. If you constantly chase everything, you would achieve nothing. Thus, it is rather critical to proactively define the right priorities and deliver on those.

2.????Identity – Internal stakeholders sometimes undermine the importance of Procurement’s involvement. Unlike Direct Procurement, stakeholders own their budget. So additional efforts need to be put in to establish the deserved credibility & involvement. Relationships & Collaboration become of utmost importance to build the needed trust.

3.????Data – Unlike direct spend, it is hard to track indirect spend. Budgets are different every year needing constant adjustment to the calculations. Also due to the inconsistent nature of spend, data crunching & analytics become challenging. Right tools & systems need to be put in place to ensure accurate accumulation of data.

4.????Quantification – It is straightforward to calculate your Opex Savings but quantifying some of the capex/soft benefits becomes a challenge. It could make the organization underappreciate the true impact you are bringing to the bottom-line.?So analytical and story telling ability becomes critical in success of this function.

5.????Measuring Performance – Clear service level expectations are required especially on service contracts. It could be challenging writing the right contract in absence of clear understanding of stakeholder/business expectations. Proactive dialogue and partnership with stakeholders is highly recommended to avoid the issues.

In Summary:

Indirect Procurement is very strategic & exciting in nature even though the perception that is out there might indicate otherwise. It is also complex & challenging because you are buying many intangible things & services, which need a customized governance plan. Collaboration internally & externally is the key. Seeing the impact it has on customer experience – no organization should take it lightly.

If you dream to make career in Procurement – you cannot skip Indirect Procurement. Simply because – you would not understand the total spectrum of an organization’s buying needs otherwise.

Akshar Awalgaonkar