Every organization needs materials and supplies to function properly. Whether the need is for raw material on a contract basis or supplies for the office pantry, a company must make purchases to continue operating smoothly.
With that said, these purchases can be roughly divided into two types: the ones that are made as per the terms specified in a contract and the ones that are outside of the contract's purview.
In an interesting statistic, these off-contract purchases that happen at companies can accrue losses to the tune of 12% to 18%. It is, thus, important to manage your spot buy expenses lest they spin out of control.
Let’s understand what spot buy is, why your company requires it, and how it can be managed effectively.
Spot buy is something your company does in response to a need that arises at the moment and cannot be put off for later. Let's understand this with an example.
Say you need to travel overseas to an important conference at the last minute. Upon landing, you realize that the country has a colder climate, and you haven’t packed anything warm to wear. As a result, you rush to a clothing store to buy yourself a coat. This is spot purchasing.
Similar purchases show up at your company’s doorstep every now and then. Statistics say that spot buys may be as high as 40% of a company’s direct spending.
Unlike strategic sourcing, which allows for realizing the best prices, timing, and deals for the items a company needs, spot buys are more instantaneous. Spot buys are usually small orders that are always paid upfront, and they are never planned.
The structure and standard operating protocol of a company establish certain standards and rules for purchasing items or for strategic sourcing. However, there are certain situations where spot purchasing is either inevitable or gets a company a better deal.
Let’s take a look at the scenarios where spot purchasing can happen.
Spot purchasing is often the result of an emergency.
Say that a sudden power surge at your company resulted in damages to electrical and electronic equipment. Your office can’t wait for new laptops/coffee machines to source strategically, so it just spot-buys the bare minimum to keep the operations running.
Companies follow a detailed contracting and invoicing procedure to purchase items. However, when the purchase is too small to put through such an exhaustive process, spot purchasing can be a more efficient option.
For example, purchasing a pack of ten ballpoint pens for your team to use.
Unlike the items already being procured through exhaustive contracts and set policies, there are certain items that your company can acquire through simpler transactions.
For example, buying a cake for a teammate’s birthday or ordering a meal for your team working overtime for a project.
Spot buys work best when the item your company acquires is a unique one. A good example of this would be artwork to adorn office spaces.
While it is still an expense to the company, it cannot be put into a contract and thus must be bought on the spot.
Every business has specific and clear categorization of expenses. Certain expenses are still not managed or structured into the company’s records.
One example of such spending is when your company has a contract and policies in place for replenishing the office pantry, but your employees still use their purchasing cards at retail outlets to buy items like coffee.
For these expenses, spot buys make more sense.
Any organization deals with purchases in three different approaches:
Let’s understand these in detail.
Strategic sourcing is the most common type of purchase method that a company uses. It usually has a long lead time and involves suppliers selected through detailed screening. A contract is usually drawn up that states all the terms and conditions of the purchase.
Tactical sourcing is similar to strategic sourcing but applied to a comparatively smaller scale and quicker timelines.
The items that help the company stay in operation and the employees supplied with necessities (pen, paper, glue, etc.) are acquired through tactical sourcing.
Spot sourcing is almost never a planned purchase. The procurement professionals are usually not involved – the purchase is executed by the end user.
This purchase is essentially an immediate affair – pick an item and pay for it.
Bonus tip: You can use no-code software like Hubler to create your own spot-buy management solutions to keep a better track of the expenses.
There are countless situations at an organization where spot purchasing can be perfectly justified and, in fact, preferred:
Spot buy is an inevitable act of immediate purchases that no company can either stop or ignore. There will be unavoidable situations when managed expenses just won't solve the problem at hand - it is here that spot buy shines through. However, these expenses can quickly spin out of control if not monitored closely.
The good news is that there are plenty of customized solutions available today to reduce spot buying expenses.
To manage your spot buy expenses better, consider getting a no-code solution like Hubler. We help you set up a customized app for managing spot buying together without using code.