While we might think of procurement as a single discipline, it’s more complicated than that. There is direct procurement, which is what most people think of when they hear the term “procurement.” This is the sourcing of the raw materials needed for production. However, there is also indirect procurement, or the sourcing of products, services, and supplies that keep the business running. This is everything from repairing equipment to buying the toner and paper for the printers. It’s no less important, but indirect procurement is often harder to measure and source for.
Indirect procurement has inherent challenges. In this post, we’ll explore some of those challenges. More importantly, we’ll outline three best practices when starting the sourcing of this super category that will ensure that sourcing professionals are able to overcome those challenges to ensure their next indirect sourcing RFP is a success.
The Five Biggest Challenges in Indirect Procurement
Indirect Procurement Challenge #1
One of the biggest challenges in indirect procurement is that it’s not always clear what the procurement team needs to source. With direct sourcing, you have specifics—for example, a SKU, a quantity, or a specific unit of measurement. Instead, indirect procurement requests might be communicated with a business need. If there is a particular product or service required, chances are the specifications won’t include the same detail and clarity that those for a direct procurement would.
Indirect Procurement Challenge #2
Procurement teams are often brought into an indirect procurement situation after a stakeholder has been handling the process on their own for some time. As a result, the stakeholder may have established relationships and preferred service providers. This makes the process of trying to run a free and fair competitive process a challenge.
Indirect Procurement Challenge #3
Indirect procurement often has a multi-dimensional aspect that makes it especially challenging. For example, an award decision may involve requirements, qualifications, the total cost of ownership, plus stakeholder preference. How do you weigh these different factors (especially if the stakeholder favors a provider)? For the procurement team, this turns into a frustrating exercise of comparing apples to oranges.
Indirect Procurement Challenge #4
The supplier mix with indirect procurement makes for a challenge as well. As already mentioned, stakeholders may have preferred service providers or suppliers. Your procurement team may also have preferred suppliers. There may well be brand new suppliers in the mix. In addition, each supplier bidding on the project may be associated with different sub-processes. This is yet another level of complexity.
Indirect Procurement Challenge #5
Finally, indirect procurement often involves a lot of back-and-forth communication. Different suppliers offer different scopes of work and varying service levels. They might change these variables at any time during the negotiation. Multiply that by the various suppliers involved in the bidding, add the likelihood of lengthy e-mail chains (each of which is likely to have critical information buried somewhere within it), and you have yet another big challenge for indirect procurement.
These are five big challenges. But, adopting these indirect procurement best practices will help to overcome them.
Indirect Procurement Sourcing Best Practice Number One: Use a Short Video Presentation
The first best practice is one that many procurement professionals have never really considered: a short video presentation. Time is valuable, but so is the experience of a warm, human introduction to a service provider or supplier. However, you don’t even know if all these suppliers are even qualified to bid on the contract. Realistically, scheduling a series of meetings just doesn’t have the payback to warrant the time and effort—although many procurement teams did this in the past.
Shooting an introductory video offers you the opportunity to personally give suppliers some background information on your company without having to meet each one. You can present an overview of the opportunity and provide context. Do it right, and suppliers will be motivated to be part of the bidding process and more likely to be competitive. Shooting one video and distributing it to suppliers and vendors is a low-effort move that delivers big time, especially with indirect procurement.
Indirect Procurement Sourcing Best Practice Number Two: Set a Clear Timeline in Advance For Suppliers
There are many moving pieces in an indirect procurement RFP, including many suppliers and vendors. Phases involved can include a technical assessment, operational assessment, and price negotiation. When suppliers have a clear timeline to work from—in advance—they have the information needed to submit their completed bid sheets before the deadline for every step of the process. Having everything you need when you need it makes for a much faster evaluation. It even opens the door to advanced software features like automated quote analysis and award tabulation.
Indirect Procurement Sourcing Best Practice Number Three: Agree On Units of Measure With the Stakeholder
The goal of an indirect procurement RFP can be nebulous and subjective. Often, you aren’t dealing with a specific product; it might be something much more difficult to define, such as branding services. How do you compare bids between marketing companies?
That’s why meeting with the stakeholder to agree on a unit of measure is an indirect sourcing best practice. In the example of the branding program, that unit of measure might be hours, dollars, or video views. Having a defined unit of measure gives you some way to compare competing bids and provides a framework for establishing the suppliers’ obligations and commitments.
Take the Next Step and Get a Free Template
You’ve learned about the challenges involved in indirect procurement, as well as the three best practices for dealing with them. Now it’s time to take the next step and look at the best tool for the job.
Arkestro is offering a free template for your next indirect placement RFP. Simply visit this link to experience the advantages of Arkestro, the AI-powered, Predictive Procurement Orchestration Platform that’s designed by procurement professionals. Our team will be happy to set you up with an RFP template at no cost. You can also try out valuable supporting features like the ability to schedule automated notifications and reminders at every stage of the process, automated quote analysis, and AI-assisted award tabulation.