The "Dollar Store" Phenomenon - Does it Exist in Procurement?
With kids back in school, many parents like me are reflecting on what has become an annual ritual of buying necessary school supplies and of course an equivalent amount of not-so-necessary 'things' to decorate or accessorize school lockers, shelves, backpacks, clothing, etc. So while the leading retailers like Staples...Office Depot...Walmart...Target and other cash in on this period with attractive deals, our friendly neighborhood 'fiVeBELoW' comes in very handy for all those non essentials. Don't get me wrong, sometimes compulsive bargain hunters (once a buyer always – a buyer) like me can also find deals for the back-to-school essentials and a number of other things at 'fiVeBELoW.' I often wonder if there exists a similar pattern in enterprise spending...meaning, does a similar phenomenon (the anything and everything at places like fiVeBELoW – for cheap or let us call it really low dollar spend buys) exist in enterprise buying, especially when we are talking about indirect spend. Throughout my Procurement career, I have come across companies with annual indirect spend ranging between a couple of million dollars up to and in excess of 15-20 billion (though they are very few). Spend items/services...what in old days used to be called 'petty' cash kind of spending...exist everywhere (the $$ amount may vary from a few thousand to a double digit millions), essentially exhibiting with one or more of the features as below.
Brand name - doesn't matter
Need a strategic vendor, contract, approved supplier etc. or not – doesn’t matter
Getting in time to fulfill a pressing requirement – matters almost always – thus requiring no formal due diligence and low importance on price/vendor discovery
There could be many more of such qualifiers/disqualifiers that my colleagues or readers could add...
If any one (or more) of the above is true, (even with different specifics for things like volume and spend, types of items, settlement instruments, etc.), then really the question (s) to be asked are... Should it be allowed? I think the answer to me would always be a difficult yes (as my buyer soul doesn't agree to buying things without some sort of a due diligence and price/vendor discovery). Although we would like to control our own spending as strategically as possible (buy in bulk – make fewer visits, source coupons where available, look for deals, go to big retailers like Costco, Sam's Club etc.) one might wonder how many visits to places like fiVeBELow are required in life. Hence, such spends whether we like it or not would exist. The proportion of such spending may vary depending on many variables such as:
Industry – Banks may have a different general proportion than say hospitals which in turn may have a different proportion than hotels which in turn may have a very different proportion than technology companies.
Procurement Structure and State of Process Maturity – How well procurement is structured, center-led, centralized, shared services, outsourced etc. in turn will determine how those firms manage spends of such nature.
Size of Overall Indirect Spending – How much the overall indirect spend and the supporting procurement structure are also determine the occurrence and even more, management.
Governance and Control – How many organizations (typically large) allow or do not allow the users to buy themselves, what kind of processes, governance and controls are in place? For example, many large organizations allow the business to handle the low dollar "tail" spends themselves.
Geographic spread, Business diversity - Number and types of business lines and how they manage procurement are also important variables.
How should it be allowed? This is an interesting subject and I am sure, there could be a long debate on this with clearly not-a-one-size-fits-all approach and with each unique situation requiring its own specific treatment. What perhaps could commonly be agreed upon, may include one or more of the following:
The support infrastructure shouldn't cause a big drain on the existing procurement structure, limited to no involvement from Procurement teams. Let's understand this a little better. Large enterprises which spend hundreds of millions on indirect spend, perhaps are better off with their lean procurement teams focusing on managing bigger spends and tail spends (even if companies outsource their tail spends – it needs a constant supervision, governance and management). Small and medium enterprises are too constrained to have the right skills, processes and tools and at the same time, their primary focus should remain on increasing top line than really looking at such small spends of $100/$500/$1,000/$5,000 USD and below.
Drawing from the analogies in top sections, it shouldn't delay decision making and fulfillment. Spends with any or few of the characteristics in earlier sections – shouldn't consume enterprise resources for decision making and also shouldn't become the roadblock in day-to-day business.
A threshold is defined to distinguish what could be channeled as this spend – less than $100/$500/$1,000/$5,000 USD.
To the extent it can, the process - or let us call it experience - should be simple and virtually not exist. (I know this last point can evoke some interesting debate but let me put it out there).
These are just some questions to begin with, there could be many more. If we ask the right questions, we will find better answers. The key is to socialize an issue which has caused pain to procurement experts for years without a commonly acceptable solution. There may not be a commonly acceptable solution in the first place but I guess, whatever the answer is, there does exist an interesting 'fiVeBELoW' phenomenon in enterprise indirect spending. Some of us have tried to characterize it and call it fancy names such as 'tail spend,' etc., but these are two different discussions, in my opinion.
Rajiv Gupta, Head of Procurement Services, Americas, Infosys
Rajiv Gupta is the Geo-Business lead responsible for the Americas region of Infosys‘ Sourcing and Procurement BPO practice. Rajiv is responsible for leading client partnership, solution blueprinting and outsourcing solution architecting across the Americas. Rajiv leads a team of global category managers for category management delivery across the Americas. He also leads global marketing and branding for the sourcing and procurement BPO.
With kids back in school, many parents like me are reflecting on what has become an annual ritual of buying necessary school supplies and of course an equivalent amount of not-so-necessary 'things' to decorate or accessorize school lockers, shelves, backpacks, clothing, etc. So while the leading retailers like Staples...Office Depot...Walmart...Target and other cash in on this period with attractive deals, our friendly neighborhood 'fiVeBELoW' comes in very handy for all those non essentials. Don't get me wrong, sometimes compulsive bargain hunters (once a buyer always – a buyer) like me can also find deals for the back-to-school essentials and a number of other things at 'fiVeBELoW.' I often wonder if there exists a similar pattern in enterprise spending...meaning, does a similar phenomenon (the anything and everything at places like fiVeBELoW – for cheap or let us call it really low dollar spend buys) exist in enterprise buying, especially when we are talking about indirect spend. Throughout my Procurement career, I have come across companies with annual indirect spend ranging between a couple of million dollars up to and in excess of 15-20 billion (though they are very few). Spend items/services...what in old days used to be called 'petty' cash kind of spending...exist everywhere (the $$ amount may vary from a few thousand to a double digit millions), essentially exhibiting with one or more of the features as below.
If any one (or more) of the above is true, (even with different specifics for things like volume and spend, types of items, settlement instruments, etc.), then really the question (s) to be asked are... Should it be allowed? I think the answer to me would always be a difficult yes (as my buyer soul doesn't agree to buying things without some sort of a due diligence and price/vendor discovery). Although we would like to control our own spending as strategically as possible (buy in bulk – make fewer visits, source coupons where available, look for deals, go to big retailers like Costco, Sam's Club etc.) one might wonder how many visits to places like fiVeBELow are required in life. Hence, such spends whether we like it or not would exist. The proportion of such spending may vary depending on many variables such as:
How should it be allowed? This is an interesting subject and I am sure, there could be a long debate on this with clearly not-a-one-size-fits-all approach and with each unique situation requiring its own specific treatment. What perhaps could commonly be agreed upon, may include one or more of the following:
These are just some questions to begin with, there could be many more. If we ask the right questions, we will find better answers. The key is to socialize an issue which has caused pain to procurement experts for years without a commonly acceptable solution. There may not be a commonly acceptable solution in the first place but I guess, whatever the answer is, there does exist an interesting 'fiVeBELoW' phenomenon in enterprise indirect spending. Some of us have tried to characterize it and call it fancy names such as 'tail spend,' etc., but these are two different discussions, in my opinion.
Rajiv Gupta is the Geo-Business lead responsible for the Americas region of Infosys‘ Sourcing and Procurement BPO practice. Rajiv is responsible for leading client partnership, solution blueprinting and outsourcing solution architecting across the Americas. Rajiv leads a team of global category managers for category management delivery across the Americas. He also leads global marketing and branding for the sourcing and procurement BPO.