Unveiling the Paradigm Shift in Indirect Procurement

Indirect procurement, often involving complex spend categories, has stood firm against the wave of online purchasing trends. Yet, new pressures and offerings are actively reshaping the course of indirect procurement’s future. For those who recall the inception of digital marketplaces for consumers, it might be startling to realize that the oldest among these platforms are now approaching a quarter-century in existence. Even in the realm of business-to-business platforms, a two-decade span has allowed them to discreetly power commerce for numerous small and medium-sized businesses.

Nonetheless, one domain remains comparatively untouched by the online marketplace revolution: large corporate procurement divisions. Unsettled concerns about scale, quality, and reliability have bred reluctance among leaders to deviate from their established practice of engaging suppliers directly. This hesitancy prevails particularly for intricate purchases categorized as “indirect spend,” which spans IT, telecom, transportation, professional services, and marketing.

Yet, the tides are shifting. A fresh cohort of procurement leaders, nurtured in an environment where complex personal needs are met with online solutions, are pondering whether a similar approach might work for their businesses. The infusion of potent digital and analytic tools is further catalyzing this transformation, offering procurement departments avenues to cultivate value beyond the conventional transaction management sphere.

Indeed, the realm of indirect spending has evolved into a more formidable challenge for Chief Procurement Officers (CPOs). Not only is this spending category expanding, but it’s also encompassing an increasingly diverse array of areas—both services and goods—as businesses intensify their reliance on third-party suppliers. Navigating spending control, compliance, and risk management has turned into a more daunting task.

Similar to their B2C online counterparts, B2B platforms provide access to a wide array of potential vendors, operating with diverse business models. This encompasses not only the previously obscure and potentially risky entities but also esteemed, pre-screened vendors. Their significance for buyers extends far beyond this, spanning customization, dynamic pricing, and the management and oversight of indirect spending—an element of paramount importance even for advanced procurement functions.

Significantly, they liberate procurement teams from the burdensome, often monotonous transactional tasks that scarcely harness their more advanced capabilities. As constituents of a comprehensive procurement system encompassing shared services or digitized sourcing, these marketplaces empower procurement teams to channel more focus toward value-enhancing activities, including strategic purchase categories, innovation, and sustainability.

As a relatively nascent phenomenon, the potential trajectory of marketplaces, their impacts, and implications remain uncertain. What procurement executives need to grasp now is their potential influence on the procurement sphere, the role of CPOs, and more broadly, their ramifications on the supply chain and spot markets. Although leaders might encounter fewer concrete answers at this early juncture, acquiring the adeptness to formulate pertinent inquiries can facilitate optimal readiness to seize strategic advantages.

What characterizes B2B marketplaces?

B2B online marketplaces establish self-service digital environments where multiple vendors can extend products or services to business clients. Analogous to B2C online spaces, these B2B platforms strive to simplify the process of identifying appropriate suppliers, enhancing customer experiences by streamlining transactions and amplifying transparency.

For buyers, the benefits encompass choice, value enhancement, and heightened efficiency. Sellers, under their own revenue growth pressures, access a broader pool of buyers, unburdened by the necessity of intensive marketing or, depending on the platform, dedicated sales, fulfillment, transactional, or logistical functions. Well-implemented marketplace procurement can also streamline reporting and data analysis.

Notably, the realm of online B2B marketplaces manifests in four distinct archetypes. Each is defined by the nature of their products and services, along with the entities accountable for contractual and warranty responsibilities. The following descriptions are augmented with illustrative company names that often surface in discussions about this sector.

Product-focused marketplaces are inclined towards commodities like office supplies, furniture, equipment, and packaging. While Amazon Business and Alibaba are prominent players. Variants like CollectiveSpend also provide structured services featuring menu-style offerings such as maintenance, repair, and operations (MRO) providers.

Time-and-materials marketplaces commonly cater to freight, travel services, IT and technology, temporary labor, and facilities management. Renowned examples include SAP Fieldglass and Concur for expense and travel management. Specialized entities like Excess Materials Exchange also fall within this archetype.

Scope-of-work marketplaces are geared towards services such as marketing, telecoms, utilities, real estate, insurance, and professional services like legal and consulting. Examples encompass Globality, which targets digital service sourcing, and Field Engineer (FE), a resource for telecom engineers and technicians.

Corporate-spinoff marketplaces constitute a category that emerged from previously captive platforms developed by major firms for their supply networks. Over time, these platforms expanded to serve other companies as well. InnoCentive, derived from Eli Lilly, serves as a notable instance.

Impacts Unveiled: Online B2B Marketplaces

B2B online marketplaces usher in several overarching advantages for businesses. Particularly noteworthy is the heightened transparency in terms of product, service, and supplier availability, coupled with pricing and procurement terms. These marketplaces transcend the limitations of hours and time zones, achieving global reach. Most significantly, they empower CPOs to offload the tactical, often repetitive responsibilities that often dominate procurement, especially within indirect categories. This streamlining enables them to devote more effort to higher-value activities.

In tandem, vendors too reap benefits, gaining access to fresh clienteles, insights into market pricing structures, and resources and services that might otherwise have eluded them—such as reduced shipping costs and more robust marketing analytics. Ultimately, marketplaces proffer a more extensive economic impact, fostering opportunities for smaller vendors to thrive.

A Comprehensive Glance at the Potential of Online B2B Marketplaces

Online B2B marketplaces possess the potential to revolutionize the role of procurement officers (CPOs) and reshape the procurement function. Over the next few years, we anticipate a significant surge in the proportion of indirect purchases conducted through these marketplaces. Indirect procurement is progressively becoming platform management, necessitating tailored strategies for procurement teams.

This shift towards streamlined procurement operations will invariably impact the responsibilities of CPOs and the broader procurement function. With diminished time allocated to vendor vetting, transaction tracking, paperwork handling, spend regulation, and compliance assurance, procurement teams will find themselves equipped to allocate greater effort towards value-centric tasks. This might involve researching advanced materials, exploring potential marketplaces, and even delving into promising avenues for innovation.

The emergent trend of procuring services via online platforms, for instance, underlines the central role that tech-procurement professionals are poised to play in driving indirect spending. Analysts project that by 2021, up to 60 percent of large enterprises’ indirect spending will be guided by tech-procurement personnel.

A Dynamic Future: The Evolution of Marketplaces

Just as the proliferation of B2B marketplaces will reshape the procurement domain and the roles of CPOs, procurement will also exert a transformative influence on the evolution of these marketplaces. Foreseeably, CPOs will forge partnerships with marketplaces to unearth goods and services, potentially forming buyers’ consortiums among their peers and establishing comprehensive ecosystems with suppliers to cater to businesses’ needs more effectively.

This interplay of dynamics will propel marketplaces to unprecedented heights, bolstering competitiveness and affording agility to procurement organizations as they contribute heightened value to their parent companies.

Essential Considerations for CPOs

The advent of B2B online marketplaces isn’t merely about transitioning online; it mandates a concerted strategy. CPOs must undertake four pivotal actions, not necessarily in a linear sequence:

Evaluate Current Indirect Spend and Processes: The maturity of the procurement unit and the breakdown of spend by category should be appraised. Identifying current challenges and gaps in procurement efforts will be integral. This assessment will illuminate how forthcoming procurement needs might align with the evolving online marketplace landscape.

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