Shifting the focus to indirect procurement

Global management consulting firm A.T. Kearney released the results of a global study, which indicate that fragmented processes, transparency and compliance issues are evident in the Middle East.

The global survey showed that indirect procurement categories like IT, marketing and advertising, facilities management, MRO (maintenance repair order), logistics and professional services have become increasingly important to chief procurement officers and their organisations.

Indirect spending of companies accounts for 60% of third-party spend in non-manufacturing companies, more than 90% in the financial services industry and sometimes 50% of spend in manufacturing organisations, according to A.T. Kearney. The respondents included procurement executives from 94 multinational companies with a combined indirect spend of $134 billion.

“Given the fact that in the Middle East companies have grown very fast without a strong focus on procurement, the potential value in terms of savings and value improvements in the region is much higher than in the rest of the world,” said Frank Thewihsen, Vice President, A.T. Kearney Procurement and Analytic Solutions.

The most successful indirect procurement organisational model highlighted in the study is a central-led organisation with collaboration across business units. Users of this model achieved savings greater than 10% over the last two years in 47% of categories. However, the 2010 study clearly shows that the adoption of these advanced techniques in the region has taken place at a much slower rate than anticipated.

More than two-thirds of respondents measure financial and internal key performance indicators such as addressable spend, identified savings and addressable categories. But less than half of the respondents track compliance management metrics such as spend integrity or accuracy and supplier commitments, scorecards and reviews.

“The good news is that with the financial crisis and recession, executives managing indirect procurement have gained substantial influence within their organisations,” said Thewisen. “Indirect procurement still has a low priority within organisations in the Middle East and companies in the GCC need to invest in better trained and experienced procurement professionals, in transparency of their procurement spend data and upgrade their procurement departments from a pure tactical, operational task to a strategic approach.”

The Indirect Procurement Study also shows that outsourcing of procurement has shifted its focus from business process outsourcing to close collaboration with managed service providers for specific spend categories like facility management, fleet and travel.

 

About

A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Their offices are located in major business centres in 37 countries. From their Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney supports both private and public sector clients. For more information, visit www.atkearney.ae