Skip to main content

Depending on the industry you work in, the line between direct and indirect spend may match a division of ownership between procurement and operations. It may also suggest a prioritization, where direct spend is considered more strategic because it is tied directly to sales and revenue. Indirect spend usually includes categories such as office supplies, corporate travel, and facilities maintenance.

In the retail industry, indirect spend is often referred to as ‘not for resale’, meaning that the goods and services, while not the company’s product, come into direct contact with consumers. In this role, familiar indirect spend categories take on a different level of importance.

Facilities maintenance becomes less about neat office parks and more about welcoming storefronts and well-maintained parking lots. Transportation services distribute product throughout a network of locations rather than just to the next step in the supply chain. Furnishings are not office chairs or warehouse shelves but display structures or refrigerated cases.

The high stakes for indirect spend at large-scale retailers has driven their procurement teams to develop deep category expertise as well as the project management, analytical, and technology skills necessary to handle distributed locations and layers of stakeholders.

CombineNet, a best of breed E-Sourcing technology company that has been delivering strong value to mid-sized and global organizations for over a decade, has seen their retail clients push boundaries to preserve margins while maintaining or even improving service levels. On March 27th, CombineNet will share some of those success stories in a webinar that takes us ‘Beyond the Merchandise’ for a look at the facilities, transportation, and sustainability initiatives that make our every day shopping habits possible.

Buyers Meeting Point spoke with Jennifer Sikora, CombineNet’s VP of Marketing, to get an advance look at the keys to success in retail procurement and what other industries can learn from their experiences.

BMP: Do you find that the primary driver for indirect procurement organizations in retail is to protect margins or to maximize the consumer experience?

Jennifer Sikora: Retail indirect procurement is driven by both – cost reduction pressure is certainly a factor, but they recognize that the customer experience is crucial amidst the competitive landscape. What we find with our retail customers is that by taking a new approach to strategic sourcing of indirect categories, they are able to tap into undiscovered savings in often “mature” categories. Two major categories are consistently focused on by our retail clients: transportation/distribution services and store-level facilities spend, things like janitorial services, renovation services, security, and facilities equipment. So what are they doing with those categories? The first example is taking aggregation approaches, which when applied to those categories, tremendous savings can often be realized and it doesn’t need to sacrifice store-level or regional preferences. For that type of aggregation complexity, you need a next-generation e-sourcing solution like CombineNet that can easily handle large volumes of data as well as the collection and analysis of both price and non-price bid data. Another example is in transportation, where being able to collect and analyze the capacity and service levels of carriers, particularly during high-demand seasons, can be crucial in supporting the consumer experience. While the transportation expenditure doesn’t add to the value of the products being delivered to distribution centers and stores, product availability issues certainly can directly impact revenue. Here you are looking at more than costs and protecting margins – securing the capacity and delivery commitments are just as vital.

BMP: How do multiple levels of internal stakeholders (such as corporate, divisional, local) complicate the supplier selection, award criteria, and award process?

JS: Those different stakeholders all have preferences that should be evaluated in the sourcing process, but it can be very difficult for the sourcing team to show the impact of those preferences on potential outcomes. For example, the majority of large retailers today have well-publicized environmental impact initiatives, such as reducing waste and conducting “greener” practices. Regional stakeholders will have preferences on what types of suppliers they like to work with. Others may want to look at diversifying the supply base, or even consolidating it. All of those preferences should and can be collected up front, and the sourcing event should reflect that in the way the online RFI and RFP are structured. If you are using CombineNet, you have the flexibility to collect that data – and then also to create and apply any combination of rules and preferences in your analysis of sourcing scenarios. You can create a scenario that says, for example: “Favor energy-efficient suppliers by 15% AND favor this specific incumbent in region XYZ by 10% AND favor minority-owned businesses by 10% in all regions.” When the answer to that scenario is returned in a matter of seconds, it is easy to share total cost outcomes with all the stakeholders so that they have clear visibility into the cost-benefit trade-offs associated with their preferences. What we like about our offering is that stakeholder complications can turn into stakeholder collaboration.

BMP: The 'total cost of ownership' approach that must be taken when building a sustainable or 'green' location requires a balance of product sourcing for service savings (such as with utilities). How have you seen companies recognize this connection across projects - that paying more for 'green' lighting or HVAC can lead to lower energy costs?

JS: Our retail customers are definitely pursuing that type of total cost analysis with the help of our e-sourcing solution. What we see is that our retail customers can collect this information from their suppliers up front as a way to guide a total cost of ownership decision. They can use what we call Expressive Bidding to solicit those types of alternatives from their suppliers. Let’s use an HVAC sourcing event as an example. The retailer can describe the baseline item requirements, while also providing the option for the supplier to propose a more energy-efficient item that may have a higher up-front cost but a better energy efficiency rating. And since the corporate stakeholders have a preference for greener practices, they can favor those types of bids in their analysis. The total cost analysis is done based on the scenarios they will review before making the decision about how to award the business.

BMP: Since sourcing location-based services in retail often involves operational colleagues in event design and proposal evaluation, what effective strategies have you seen to get them to engage in the sourcing/procurement process?

JS: This comes back to the benefits that can be gained by aggregating store-level spends for larger buying leverage with both regional and national suppliers, but without disregarding the preferences of those regional stakeholders. Many of our retail customers start by aggregating a sub-set of their entire store network, as a type of “proof of concept” approach. They pick an initial region or district, maybe starting with several dozen stores, and one spend category, in order to work out the process and to show how it can be done. CombineNet can provide them with event start-up templates and services, in addition to our e-sourcing platform, to support them in this first venture into store-level spend aggregation. It’s about building confidence and trust, and by showing how it can be done successfully. Efforts can then be rolled out to a larger portion of the total store network. An area we see many retailers tackle is armored car services, where they wish to invite the national service providers and regional suppliers to the same sourcing event – and the suppliers only bid on the portion of the business that they can support. This not only creates a more competitive environment, but also makes it possible for local suppliers to continue to compete fairly. Once the aggregation process is streamlined, the benefits go even further than any dollar savings realized, because it also yields tremendous time savings. Having to run fewer sourcing events means there is more time that can be spent on other critical categories and strategic planning.

 

For more information on how retail procurement teams can increase their impact through indirect spend:

About CombineNet

CombineNet, Inc. delivers award-winning best-in-class e-sourcing software solutions through its products CombineNet ASAP® for advanced e-sourcing, CombineNet Spend Analysis, and CombineNet Contract Management. Using these Software-as-a-Service (SaaS)-based sourcing products, CombineNet customers can rapidly adopt proven solutions for increasing spend under management, improving enterprise spend insights, and supporting their Procurement Transformation efforts. Now in its twelfth year in business, CombineNet is known for its track record in driving significant bottom-line and productivity savings for its clientele which includes: General Mills, Hershey’s, Heinz, Procter & Gamble, Sears, Johnson & Johnson, A.P. Moller-Maersk, Bayer, Coca-Cola, PepsiCo, Reckitt Benckiser, and many more Global 2000 firms.