For decades, procurement teams have been connecting people across their organizations with suppliers capable of delivering what those people need, when they need it and at the right price. For a very long time, that was enough to see the department deliver strong, consistent value to the business. However, with the rise of the internet and ecommerce came new abilities and greater empowerment for individuals. The veil was lifted on suppliers, and consumers and employees gained the power to source what they need directly from global suppliers.
Rajeev Karmacharya is Head of the Strategic Sourcing and Category Management group in Fannie Mae. He leads a team of category management, sourcing/contracting and supplier operations professionals managing $4.5+ billion in external spend.
Supply chain and procurement professionals are now tasked with the near-impossible: fighting off upstream price increases and obtaining year-over-year cost savings in today’s inflationary environment. For the first time in years, suppliers are in control and cost savings are hard to find. Where does one start? Are cost savings even possible in today’s world? Is cost avoidance the only hope moving forward?
The boom of technology implementation and its effectiveness were quickly tested by the challenges of the pandemic. While some challenges were solved successfully – collaboration via video conferences – the pandemic has stressed the structure and effectiveness of other areas.
With the impacts of COVID-19 still being felt around the world, it’s hard to look ahead at what might be coming next. But you should.
The COVID-19 pandemic brought a truly unprecedented level of disruption to global supply chains, bringing entire industries to a complete halt. It was unlike any supply chain crisis we’ve seen in modern times, but it was far from an isolated incident.
According to McKinsey, global indirect procurement spend has been growing by an estimated 7% each year since 2011. Many of the inflationary factors driving this rise are well outside of most organizations’ control – so what can today’s procurement teams do to keep these essential costs under control?
At U.S. insurance companies, policyholders’ claims represent 70% to 75% of the total cost. This makes complete sense, of course, since policyholder benefits are the sole reason why anyone buys insurance products and services.
The problem is, at insurance companies, procurement is limited to supporting indirect spend — real estate, marketing, finance, etc. — which accounts for less than 10% of the organization’s total costs and severely limits our ability to provide substantive value.
It is amazing the differences there are culturally to the concepts of eAuctions and their widespread adoption. In Europe, eAuctions have been adopted by most organizations and are considered an integral part of the strategic sourcing process. But in North America there remains quite a bit of skepticism and doubt about not only adopting the practice, but which categories are the best candidates to benefit from this strategy.
There’s not likely to be a lot of business travel happening within most of your companies right now. There hasn’t been, globally, for a few months, as corporations introduced blanket travel restrictions from March onwards for all but business-critical or key worker travel.
Before getting into the topic, write down two things:
1) Your high-level definition of the term spend under management
2) What percentage of your company/organization’s spend would you estimate is under management?
Once you answer those questions, read on…
Compliance is a critical purchasing success factor. Aside from the tremendous amount of financial impact, compliance has other positive outcomes. When employees comply with purchasing through designated supplier programs, it significantly streamlines the supply chain, allowing your organization to be agile and flexible.