Direct Spend

Effective management and control of direct expenditure

Managing direct spend should involve working cross-functionally with your internal customers to determine the exact direct requirements and the best way to manage your supply/value streams.

Your purchasing and supply management team should take the lead on determining effective processes and procedures for acquiring direct goods and services on a day to day basis. The team should also manage those people best placed to be involved in the process. This might involve individuals or groups of people that specialise in particular supply streams or categories of requirement; it might involve call-off or pull systems, EDI or ERP systems. As direct spend is critical to your organisation’s business this must be a priority and so appropriate resources should be deployed to ensure optimum efficiency and effectiveness.

Direct requirements need to be planned using appropriate inventory control systems, master scheduling, master planning and productivity control systems. In particular, your production and operations functions should work closely with your purchasing and supply management team to set the policy on inventory.

Agreeing sourcing options and building relationships with suppliers

When discussing sourcing options you should refer to your mapped supply/value streams. Sourcing options such as make/buy need to be evaluated and decided upon and business cases approved accordingly. Purchasing and supply management professionals can assist operations in the most appropriate use of lean, agile and other efficiency improvements in the supply/value streams. Contingency plans are particularly important for direct requirements that are categorised as strategic critical.

Once your sourcing plans are implemented, you need to develop relationships with key suppliers in order to generate continual improvement. This might involve working with the supplier’s buyers or with the supplier’s suppliers in order to extract greater value and remove waste. Your purchasing and supply management team should also be responsible for ensuring that the implemented sourcing plans are driving value and that these are monitored, checked and improved upon each year.