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Managing Indirect Spend
Enhancing Profitability Through Strategic Sourcing
Second Edition
JOE PAYNE
WILLIAM R. DORN
DAVID PASTORE
JENNIFER ULRICH
Copyright © 2021 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data is Available:
ISBN 9781119762348(hardback)
ISBN 9781119762492(epdf)
ISBN 9781119762362(epub)
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Managing Indirect Spend is and always will be dedicated to Abraham Podolak and Steven Belli. Without your perseverance, vision, and enthusiasm, these pages would surely not have been written. Your joint leadership, guidance, and compassion built a unique company that changed all our lives forever.
Preface
WE WROTE THE FIRST EDITION of Managing Indirect Spend in 2010. At that time changes were happening in procurement, and many organizations were moving to centralized indirect spend and fully leveraging the aggregated purchasing power of their companies. Investments in procurement were high, with organizations adding people, processes, and technology to meet their objectives. Early in that decade, much was written about “Procurement 2020” and how far the function had come.
Still, not everyone got the memo. When we wrote the first version of this book, strategic sourcing and category management for indirect categories was still relatively new for many organizations. Now, organizations have teams of category managers, third‐party outsourcing, and comprehensive savings tracking. At the same time, they still have many of the same problems as they did in those early days. They lack spend visibility, they're seeing diminishing returns in terms of cost savings, they're having trouble driving change, and procurement is still perceived as a tactical, nonstrategic function.
The organizations that were in “build mode” earlier in the decade now need a seat at the table at the C‐level, they need investment in new systems that drive adoption and compliance with procurement policies through enablement, and they need training for their teams. They struggle, however, to create the business case for this investment. As Kurt Vonnegut wrote in his novel Hocus Pocus, “Another flaw in the human character is that everybody wants to build and nobody wants to do maintenance.”
Many large organizations—from publicly traded services companies without procurement departments, to large industrial manufacturers that allow each plant to purchase independently without leveraging volumes, or healthcare providers that have relied on their group purchasing organization to effectively manage budgets for them—still do not know how to achieve substantial cost savings on all of the “stuff” they buy. The people burdened with these tasks often do not know where to begin. It is for these beleaguered souls that this book has been written.
In our experience, resources for these types of organizations are sorely lacking. Many consulting firms and analysts pitch sourcing optimization and a variety of other buzzwords with which they seek to replace the term “Strategic Sourcing.” For some reason, people have begun to associate the Strategic Sourcing process with the standard three‐bid‐and‐buy process that most organizations have been using for decades. They all believe they are sourcing strategically; therefore, management does not see the need to provide the proper people, technology, time, and training to effectively manage spend and look for cost reduction opportunities. Industry analysts and other experts are already looking to identify the next big thing—calling strategic sourcing irrelevant, outdated, or ineffective—while their customers continue to struggle with getting their arms around the basics of what it means to source strategically.
WHAT THIS BOOK WILL DO FOR YOU
Whether you are an executive, procurement professional, or any
