Why is Indirect Procurement such a complex job? Interview w/ John Dockins

It’s no news that indirect procurement is a complex job. But what are the factors that make it complex?

Well, that calls for a deep discussion. Fragmentation, decentralization, less than adequate talent inflow – multiple factors may add to the complexity of indirect procurement.

In today’s episode of our Procurement Game Changer podcast series, sourcing expert, John Dockins takes a close look at all these and more.

If you’re interested in taking the complexities out of indirect procurement, this episode is for you.

Key Takeaways

Indirect for the most part still remains very fragmented across multiple departments and stakeholders.

Direct spend tends to be managed by centralized department. Not the case with Indirect.

In Healthcare, Indirect are things like IT, construction, staff augmentation, consulting.

You’ll likely also see internal stakeholders where they become frustrated because of the time it takes for procurement or sourcing professionals in the indirect categories to do.

If you’re working in an organization or your goal as a leader is to try to, you know, end up getting more mature or getting control over the indirect spend and your goal is then to centralize that and into the supply chain, you’re likely gonna run into this fear of change or fear from the business that supply chain or the sourcing team, right?

Transcript

Hélène:
So welcome to procurement game changes the podcast for procurement leaders that make a difference.

Today, I’m delighted to receive John Dockins. He’s the non-clinical Sourcing Executive Director at Cleveland clinic, a non-for-profit multi-specialty academic medical center that integrates clinical and hospital care with research and education. Besides his indirect procurement expertise, John is also an improvement guru with experience in Manufacturing, Financial Services, and Healthcare.

Welcome to the show, John.

John:
Well, thanks for having me. I’m really excited about today’s topic.

Hélène:
Wonderful. So, John, could you tell us what led you to procurement?

John:
Sure. Well, the short answer is I saw a need and found myself attracted to the art of negotiations. In my early career, I was predominantly either in IT or supporting it in one form or another, and I saw firsthand IT professionals struggle with managing the day-to-day job or their operational role and navigating contracts in the vendors and suppliers.

As we know, it can be challenging to drive the right negotiations and then transition into that operational owner role. And so typically what we find is, you know, someone can either be softer maybe on the negotiations because they don’t want to put the operational side at risk or vice versa.

So due to this, I started to have an interest in vendor management and I spent time developing and leading VMOs for different organizations, which then led to opportunities to move up the value stream into sourcing and procurement. And today I’m fortunate to have the opportunity to lead all the indirect spend for the Cleveland Clinic foundation.

Hélène:
Wonderful. So going back to indirect, because the topic today. We’ll be talking about why indirect procurement is such a complex job.

So companies often consider indirect procurement as an easy job. And we think that direct procurement is the noble procurement part.

And from afar it is true that indirect procurement might look like something that is heterogeneous, with little impact on the core business with repetitive activities. But is it really, right?

Hélène:
So John,

What is indirect procurement? What type of purchases does it cover and how does it contribute to the business?

John:
Yeah. So I’ll try to keep this one in a simple definition, but I I’m glad we’re starting there.

So you know, indirect spend is any expense incurred for services, materials, or things like maintenance that is required to run or operate the core business.

Now to really understand that let’s put that in contrast with a definition for direct spend, which would be those expenses of goods, materials, you know, whether they’re raw or otherwise and services directly related to the production of finished goods or services that your business would sell to customers.

Hélène:
You had a way to describe what is indirect, last time we talked, that I thought was really, really good. Can you share that with us?

John:
Yeah. I tend to describe it to some of my internal stakeholders of it’s everything no one cares about until they don’t have it. And so if you think about it and we can get into that a little bit more in a a second, but you know, no one cares about toilet paper until you don’t have it.

Hélène:

Why is Indirect Procurement such a complex job?

Yeah, absolutely. So let’s go to what makes it a complex job and what makes it exciting?

John:
Yeah, I think it would help to give some definitions or some examples rather.

So Indirect for me, in Healthcare, and this is very specific to the business or organization or industry you work in, but for me in Healthcare, Indirect are things like IT, construction, staff augmentation, consulting… So specifically, you might find things like office supplies, laptop, landscaping, even architectural design services.

But we gotta keep in mind, right, that that’s very, can be very dependent on the company or industry you work in. So what makes it complex? Well in many organizations today, direct spend tends to be managed by centralized department. Usually that’s referred to as a supply chain in some form or fashion.

So for on the direct side, this means that processes, stakeholders, even the technology tend to be far more mature and frankly they actually exist.

One reason, though, for this is the decades of practice in managing the cost of good sold on a balance sheet. And most of us are familiar with, you know, cost of good sold and the direct impact. Now, again, in comparison or in contrast, Indirect for the most part still remains very fragmented across multiple departments and stakeholders.

The processes designed for direct spend may not always work for the indirect categories and the technology doesn’t always accommodate the difference between the two. You can see this practically play out in the ERP products that are on the market today.

They are heavily configurable for more of a direct type of spend around goods than they are services, which tend to be Indirect.

So technically, this means you might find your IT department or other shared service departments, like HR and Finance, tend to do their own sourcing and procurement rather than that function being done centrally. Now, this is a bit of a broad brush, but typically you would find more service agreements in indirect spend categories and less goods.

Service agreements tend to be those one-off scopes of work that need to be negotiated. Whereas goods agreement, you can contain many SKUs. Sometimes thousands of SKUs can be on a goods agreement from the same supplier.

So this would then tend to lead to more contracts, more volume because everything tends to be a one-off scope of work.

Hélène:
Yeah. So that’s music to my ear, you know, as a specialist in how to buy consulting services, I can only agree to that, but so what makes it exciting?

John:
Well, you know, I don’t know if that makes me, you know, maybe a little off sitter, but for me it’s everything I just talked about. Every day is different.

The challenges are different. I find that living in the indirect space, everything is a little different. Whether it’s the stakeholder you’re dealing with, right. Dealing with an IT stakeholder can be very different than dealing with someone in Finance or HR.

And then because you have other challenges like contract volumes, and especially around statements of work, you know, it’s definitely not for everyone, but that’s what makes it exciting for me.

Hélène:

Difference between relationship of internal stakeholders in Direct and Indirect Procurement.

So you mentioned the internal stakeholders and so why is it different between direct and indirect in the relationship with the stakeholders?

John:
Well, it really ties right into that previous question and topic around complexity, right? Much of the indirect spend is happening decentralized, as I mentioned, and throughout different departments.

So it requires to establish very strong partnerships or relationships with those internal stakeholders. So you either centralize those activities or at least aggregate the total spend by category to better understand any current opportunities that you might have in your company or organization.

You’ll likely also see internal stakeholders where they become frustrated because of the time it takes for procurement or sourcing professionals in the indirect categories to do. Because again, they may be used to doing it themselves where maybe not everything is taken into account.

Maybe they’re not looking at all the right terms and conditions. And again, it’s, not a negative towards any of those professionals in those spaces.

It’s just [that] they have a day job to do and sourcing and procurement tends to not be that job for them. So this correlates to the aspect of much of indirect spend is tied to service agreements, which can also take longer than goods agreements because of those individual scopes of work.

You might also find where priorities are misaligned, where you have the same sourcing professionals end up being accountable for both direct and indirect.

And because of, go back to that definition, right, a lot of organizations are really attuned to the cost of good sold. And therefore you can see preference put into the direct side of the spend and maybe not as attention or maybe not as much due diligence put on the indirect side.

However, I’ll go back to those relationships because establishing those fantastic relationships with your internal stakeholders is imperative to the success of any organization or any sourcing professional in the indirect side.

Another way to think about this though, is your internal stakeholders, your it team, your HR, your Finance, et cetera. Those are your customers, right? The indirect sourcing professionals’ customers are those internal employees or caregivers for us in the Healthcare space that we need to treat them as such.

Hélène:
No, it’s very true. And I always advocate for collaboration with the business lines.

And I think that you’re right, it’s when we talk about indirect and in particular services and intangible services the roles and responsibilities in the sourcing process are kind of shared between those who need to make sure that the process is compliant and you’re mitigating the risks of you know, buying wrong and at the same time, the knowledge of what is to be purchased and how to measure the quality of a provider is on the business side. And that’s why it’s so important to work together.

John:
Yeah. And in addition to that, right, is if you’re working in an organization or your goal as a leader is to try to, you know, end up getting more mature or getting control over the indirect spend and your goal is then to centralize that and into the supply chain, you’re likely gonna run into this fear of change or fear from the business that supply chain or the sourcing team, right?

You could put a lot of labels of that are, you know, you’re gonna be messing with my area or you’re trying to take control away from me. Right.

And that’s why it’s imperative to build those strong relationships. And again, let’s not forget those relationships. What makes part of indirect unique or maybe a little different is you have to build those relationships across all those different divisions and departments in the organization because indirect tends to still be very fragmented.

Hélène:
So that’s good segue to the next one. So there are relationships, there are technical aspects in that job. What kind of profiles do you need to handle indirect procurement categories?

John:
Yeah, well, of course there’s the technical expertise, right? And if you’re needing someone who can source IT well, you know, then you ideally need someone, who’s got some type of IT sourcing, or at least an IT background and understands the language, same thing with Finance, same thing with HR staffing, right?

So you need that technical component, but perhaps, maybe the not-so-obvious that so important in the indirect space are those soft skills and the behaviors. Right?

And I have found that above all else, those who have more success than others come down to their ability to remain flexible and their ability to remain humble.

Flexible, because of what we’ve already spoke about right. Related to, you know, you’re likely gonna run into the indirect space, the processes, the technology, maybe the staffing levels for the indirect sourcing team and those internal stakeholders, right, are maybe not ideal or where you want them to be. Humility because indirect is simply not as mature in most organizations as direct spend.

So this might service with internal stakeholders, as we talked about, right. Servicing with the supply chain department itself or where it can be the perception within the organization that indirect or the indirect sourcing team may not be as important again, because it’s not directly tied to the cost of good sold.

Hélène:
Yeah. So it’s patient too that they have to be in order to slowly getting to the point where you have the right place in the organization. So is it easy to attract and retain talent in indirect procurement?

John:
Well, I actually think it could be a little less about indirect as it is about everyone in supply chain today in the post pandemic world. Right.

Attracting anyone with the strain on the global supply chain is absolutely getting more challenging. The pressures are mounting with all of us in supply chain more now than ever to keep product flowing and to keep those costs down.

And that’s probably a whole different, you know, topic that we can talk about around, you know, inflation and other things that’s happening in the world. Yeah.

Now, when adding those things to the mix of supply chain experience, those specific category experience means absolutely yes. It is very challenging right now to attract new talent in indirect procurement.

However, retaining, I think is something else altogether, right? I’m a believer the number one reason our teams stay or leave is based on how leadership teams or leadership themselves treats the team.

We must show above all else that we value the work that supply chain professionals are doing. And as leaders, we must continue to evolve how we do this.

More and more people, right we gotta keep in mind in a post pandemic world, are moving to a remote or hybrid work environment. And gone are those days where most of us are seeing our sourcing teams daily in the office.

So how we build and maintain a sense of belonging that their work is valued, that we as leaders, we care for them as individuals, in my opinion, is the key for high retention rates.

Hélène:
Absolutely. So what would you recommend to someone who’s taking that first job in indirect procurement?

John:
Well, one I’d make sure, you know, are you really sure you want to be at supply chain, but I joke of course.

So you know, yeah. We could look at all the normal stuff around, like finding a mentor, ensuring the company that you work for meets, you know, your personal needs and, and mission and visions. But I would go back to what I was talking about before about you’ve gotta remain flexible and humble, right?

So when you are having challenges and you take that first job or position in indirect spend, take a look at the environment around you, right. And I’m talking about the technology, the processes, you know, the culture itself, because in most cases I would probably say it may not actually be about you, right.

It’s about the structure and the fragmentation of indirect spend. In addition to that, I would say, if you can find a niche that is in the indirect category, the choices here are wide open and certainly seem to be endless. Right?

You could do IT, you could do construction, you could do consulting, staff augmentation, office supplies, like the list goes on and on when you start thinking about indirect space, like furniture, software, water softeners, right? Like the list truly seems to be endless, but most importantly, embrace those challenges. And look in today’s world. Just have fun.

Hélène:
Yeah. So what’s our takeaway, you know, what’s is the one thing that our listeners should remember about our conversation.

John:
Yeah. You know, I think that’s a very important conversation and I believe that direct and indirect spend are two sides of the same coin, right? You absolutely have to have both to maximize the opportunities and deliver the most value to the organization you work for. Both are equally important and require the right skills and experience.

And right now, with the strain on the global supply chain, inflation rising, political disruptions, natural weather disruptions, in our lifetime, I don’t believe that there’s been anything or like this, and probably nothing more of an important time for supply chain professionals in the role we play to keep costs down and keep that product moving to help the business.

Hélène:
Wonderful. Thank you, John. So now it’s your turn to tell us about your experience and challenges in the comment section.

Don’t forget to subscribe if you want to be notified when a new episode is out. Thank you listening.

Thank you again for your time, John. I hope you enjoy this episode.

And if that’s the case, you can give us a thumbs up.

Happy sourcing to everyone. And bye. Au revoir.

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Helene Laffitte

Hélène Laffitte is the CEO of Consulting Quest, a Global Performance-Driven Consulting Platform. With a blend of experience in Procurement and Consulting, Hélène is passionate about helping Companies create more value through Consulting. To find out more, visit the blog or contact her directly.

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