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McKinsey & Co. Understand Indirect IT Procurement’s Future 

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It’s not too often that we see an article or report that really grasps the future of IT indirect procurement, but this one: How B2B online marketplaces could transform indirect procurement by Pierre de la Boulaye, Mauro Erriquez, Alejandra Jiménez Iribarren, and Fabio Russo at McKinsey & Co. really nails it. Hats off to them. 

For those of you who don’t have the time to read all 16 pages here are the relevant key points (reworded in some cases) and how they confirm what we at Markit have been saying, believing (and doing) all along.

B2B marketplaces have been around for about 15-20 years and have become popular with SMEs but they have yet to fully penetrate large corporate procurement departments. Concerns about scale, quality, and reliability have made leaders hesitant to change their longstanding reliance on dealing directly with suppliers. This is especially true for the more complicated purchases that fall under the label “indirect spend” e.g. IT. 

The times are changing, the new generation of IT buyers have a different mindset and with the power of digital and analytic tools to back them, they are opening new avenues for procurement departments to generate value in areas outside their traditional focus on transaction management. 

Indirect IT spending is increasingly challenging for chief procurement officers (CPOs) 

Indirect spending is rapidly growing - controlling spending, compliance, and risk has become a bigger headache too. The best B2B marketplaces should contain only high-quality, pre-screened vendors (Markit integrates the IT catalogues of approximately 300 leading global IT distributors in 33 countries, offering an unparalleled total of 3 million unique IT products in total). The value of Markit and other leading B2B marketplaces extends beyond wide vendor and product choice to catalogue and permission customisation, dynamic/real time pricing and stock availability and spend management and control mechanisms – all critically important for IT procurement functions looking to save time as well as money. The time saving benefit of advanced B2B marketplaces can’t be understated – they can free procurement teams from time-consuming, often repetitive, transactional work that fails to take full advantage of their more advanced capabilities. When part of a broader procurement system that includes such elements as shared services or digitized sourcing, marketplaces free up procurement teams to place more focus on value-adding activities, such as strategic purchase categories, innovation, and sustainability. 

Markit makes it easy to identify the right products/distributors and improves the buying experience by making simple and transparent. Our 9,000+ clients (including 20% Forbes Global 2000) have immense choice and gain additional value and greater purchasing efficiencies and our distributor partners reach our ever-growing, international client base without the need for additional marketing, sales, fulfilment, transactional or logistical functions. 

Hours and time zones are irrelevant, Markit like other big B2B marketplaces are truly global and 24/7. 

The key benefits of B2B marketplaces to Indirect IT CPOs (according to McKinsey)​​​​​​​

  • Huge vendor/product choice. Markit offers 3 million unique SKUs. 
  • One stop shop (in Markit’s case, CPOs have a single log-in and can perform purchasing in 33 countries and counting) 
  • Faster, cheaper delivery (Markit’s business operations in 33 countries = low cost local delivery and local currency invoicing) 
  • Savings – in pure product savings our clients average 12%+ per annum (compared to less than 5% average through other indirect IT purchasing methods) 
  • Integration – An increasing number of Markit clients are seamlessly integrating with Ariba, Ivalua, Coupa and other leading S2P platforms for simplified negotiations, contract compliance, ordering accounting, reporting and so on. 
  • Managing spend and compliance – single point access to Markit’s dashboard of transparent performance data and transaction histories means CPOs can easily take control of spending and establish spending limits by buyer role and create restricted catalogues or favourite lists for various buying groups. This considerably helps reduce maverick IT purchasing.

BUT CAVEAT EMPTOR... McKinsey sounds a note of warning and a wise one too. Most B2B marketplaces operate under a broker model. Essentially that means the buyer buys through the marketplace BUT the relationship is direct with the end supplier.

This carries significant risk as the marketplace is usually NOT responsible for delivery times or warranty/return issues. This mean a lot of potentially time-consuming headaches if/when things go “wrong”.  

In contrast - Markit operates for the end-user as “single-vendor model” which means we take full responsibility for all delivery and warranty issues. This is rare among indirect IT marketplaces. 

So, which features should CPOs look for in an indirect IT B2B marketplace (according to McKinsey)?   

  • Easy integration to S2P and ERP systems.  
    • Markit has integrated with numerous platforms.
  • Robust product and service offerings, including detailed product information and technical specs that facilitate product comparison and purchasing.  
    • Markit offers 3 million products with integrated CNET data and smart search functions. 
  • Transparent and dynamic pricing to help teams buy smarter and compare prices, so they can negotiate more effectively. 
    • Markit pricing is fully transparent and prices are displayed in real time. 
  • Ordering and fulfillment data, including the customer’s purchase history, shopping or wish lists, and other preferences. 
    • Markit offers all of these data, and more. 
  • Financial services, including financing for buyers, and insurance and tax-management services for sellers. 
    • Markit offers purchasing or leasing options (subject to approval) for buyers. 
  • Payment options, which include multiple forms of payment, open purchase orders, and stored account data, are especially important for e-catalog marketplaces. Giving customers a choice of currencies for payment ensures greater global reach. 
    • Markit offers several payment options, in the currencies of 33 countries. 
  • High-quality logistics, such as negotiated shipping rates that most vendors cannot match on their own. Cost-effective and speedy logistics with advanced tracking capabilities are a critical competitive feature, particularly in commodity categories. 
    • Markit’s smart delivery system and basket optimisation features identify 3 purchasing options for each order: cheapest, fastest and least number of shipments, so clients can choose according their priority for each order. 
  • Returns and refunds, which marketplaces can process promptly, thanks to their fulfillment, payment, and logistics systems. 
    • Markit offers dedicated client support services in local languages to handle returns, repairs and refunds when they are (rarely) needed.

The impact on CPOs and IT procurement function 

McKinsey & Co. expects a marked rise in indirect purchases via marketplaces and our data supports that, demand is growing. They see indirect procurement shifting towards platform management, something we also note as a trend in larger companies.  

The impact will be (or “is”, in the case of companies already using Markit) profound. Less time spent chasing vendors or making transactions; less paperwork, lower levels of maverick spend, and higher levels of compliance and so on, mean they can spend time on higher value tasks. 

McKinsey points out that IT industry analysts project that by 2021, indirect spending will be led and directed by tech-procurement people at up to 60 percent of large enterprises. 

We are really pleased that McKinsey & Co. took a long and close look at our area of expertise and accurately reported on some of the issues that really matter in indirect IT procurement. We are even more pleased that we match up to their B2B marketplace quality indicators and feel proud that our clients can read from a respected source that the type of IT purchasing model (Markit) they have chosen was a wise decision. 

Are our clients satisfied? Markit’s Net Promoter Score in 2019 was 64.5 and rising. 70% denotes a truly world class company. We are getting there...onwards and upwards we go, to save our clients even more time and money. 

Happy New Year everyone! 

 
Take the chasing  
Out of IT purchasing