Most procurement departments have a good understanding of the most critical categories of goods and services that their organizations buy. These are the direct materials, subcontracted services, and other things that are close to the core of what the organization is in business to do. This understanding of these categories means that these procurement departments know what they buy, how much they buy, who they buy from, and what fair market pricing is.
This understanding enables these procurement departments to manage these critical categories well, achieving respectable cost savings and getting good supplier performance. But these critical categories only represent a small portion of the organization's overall spend.
The majority of the cost savings opportunities are hidden in the rest of the categories of goods and services that the organization buys. Because these categories have less visibility within the organization, they have been historically undermanaged, characterized by the use of too many suppliers and are bought at higher than benchmark prices. Because of this lack of visibility, procurement departments can find it challenging to figure out a way to address the opportunities.
We shall look at a 5 step process that helps organizations identify as well act upon the opportunities in these categories.