Procurement managers at life sciences organizations like biotechnology, pharmaceutical, and research institutions know how challenging it can be to help keep scientists and their labs fully stocked while still managing to the budget.
The current common model, where only the catalogs of one or two large suppliers are available purchasing departments and researchers doesn’t help.
One of the largest challenges faced by procurement professionals in managing indirect spend. Indirect spend shows up in several ways:
In a broad sense, “tail spend” refers to unmanaged spending. Each business or team may have their own specific definitions of tail spend, but it is inclusive of
- Spending with suppliers that aren’t on the pre-approved suppliers list, also called spend leakage. This often happens when a product or supply is not available from a regular vendor, forcing the purchaser to go off catalog.
- Spending with suppliers outside of the purview of the procurement team, also called maverick spend, shadow spending, or rogue spend. Though there can be various drivers for this kind of spend. A common scenario is employees who have budgetary access and make small purchases to supplement their activities. Thought the dollar amounts on these transactions is typically low, the impact can be quite significant if there is enough volume. Either way, this spend puts procurement in a challenging position, as they have no visibility into it, which means losing out on the opportunity to manage the vendor and cost.
- Spending with legacy or unmanaged suppliers. In some cases, suppliers or vendors will have been onboarded for a specific project or to fill a supply gap, but have lapsed out of active management.
- Misclassified purchases. These are purchases that are simply coded incorrectly or assigned to the wrong department.
Some of the above may simply be an education issue with buyers, but it can also be a challenge of competing priorities. Researchers may simply not have the time to wait for an approved supplier to restock critical materials, despite what the procurement policy is.
Procurement, too, may be forced to go off catalog in order to keep laboratories stocked, even when they prefer not to.
Third Party Spend
In the life sciences, third-party spend refers to those products that are supplied by a traditional, managed supplier, but are not the proprietary products of the supplier; hence, these items come with a markup.
However, even though the supplies are coming from a contracted, approved supplier, purchasers simply don’t have the same negotiating power when it comes to third-party products. While third-party spend is a significant source of revenue for large distributors and manufacturers, it is also a significant source of hard-to-manage cost for procurement departments.
This is one of the more challenging spend categories to manage, as suppliers have little incentive to share information about third-party products
It All Comes Back to Catalogs
While corporate e-procurement has modernized extensively, enterprise procurement applications often don’t have the flexibility or the vertical awareness to allow life sciences procurement to onboard a variety of supplier catalogs quickly. This creates the unintended consequences of vendor lock in, and in some cases can create weaknesses in supply chain resiliency. The lack of diversity in supplier catalogs can push that indirect spend simply through lack of options.
Yet, point solutions often aren’t robust enough to go all the way through the purchase-to-pay process or can create additional work for accounts payable.
To help manage indirect spend—and virtually eliminate third-party spend—B2B marketplaces like Labviva integrate with well-known procurement solutions like JAGGAER Procure-to-Pay, SAP Ariba, or Oracle Procurement Cloud to offer access to any supplier in the network.
This effectively solves the problem of onboarding new catalogs, while also surfacing data that procurement teams need to improve supplier management.