Spot Buying — Everything You Should Know
We are sure that many of you have heard the term spot buying. However, not all of the people who heard it know what spot buying is.
For this article, we will discuss the definition of spot buying. We will also check how it occurs and the issues with spot buying.
After you finish reading this article, you will have a deeper understanding of spot buying. You will know how to use it effectively and avoid any issues that may come when you utilize spot buying. Furthermore, once you know it, you will be able to decide if spot buying is for you.
What is Spot Buying?
In doing business, there will always come a time when emergencies will arise or last-minute costs will just pop up. The purchases that arise from these situations are what we call spot buys.
Spot buying is a purchase that is unplanned which is usually considered an emergency cost or a one-time buy. Just like with any other type of spend, spot buy must be kept in check.
Spot buying typically includes at least one of the defining features that are listed below:
- Low-value
The low value is usually related to small purchases that if left unchecked can add up over time which eats away at the bottom line.
- One-off deals
One-off deals typically refer to emergencies that need an immediate solution.
- Forgo the RFP process
These spot buys are often less formal and made in a short time.
- Unique purchases
These spot buys are typically last-minute purchases that are necessary to continue a specific event.
Spot buys can add up over time which can be difficult to identify as they rarely follow an RFP process. Almost 40% of an organization’s direct spending consists of spot purchases.
How Does Spot Purchasing Happen
Spot purchasing happens all the time in the business world even if organizations plan their purchases in advance. There are many reasons why spot purchasing happens.
The most common one is that the item is bought where the transaction is not complicated as it is inexpensive. Another is that it can be in the event of an emergency.
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What are Spot Buy Catalogs?
A spot buy catalog is an online marketplace that gathers low-value deals and purchases. Its goal is to capture emergency searches that help organizations make quick spot purchases without taking a long time in comparing prices.
Although spot buying catalogs are beneficial, nowadays it is seen as ineffective, costly, and a waste of time. This is due to the fact that it should be used as a tool and not a solution.
Three Types of Sourcing
1. Tactical sourcing
Tactical sourcing is used to get the items necessary to keep the business running or those that enable employees to perform their duties.
Price and availability of delivery dates are the main concern during tactical sourcing decisions as purchases are made based on need. Every transaction is treated as separate from the other and they usually maintain a short-term approach.
2. Strategic sourcing
Strategic sourcing makes up the majority of purchases of a company. These purchases are planned in advance, taking into account the company requirements and the capability of the suppliers. Usually, this approach has a long lead time.
Price and availability are considered in this decision just like in tactical sourcing. However, it also considers how these purchases can impact the whole organization.
One thing unique about strategic sourcing is that it encourages communication and keeps it open throughout the whole contract lifecycle.
3. Spot sourcing
Spot sourcing is usually not planned at all. These are mostly made up of small orders for one-time requirements and are often performed on an immediate payment and delivery basis.
Additionally, spot sourcing is, oftentimes, an under-managed spend as a result of its ad-hoc and user-based nature.
Issues regarding Spot Buy Catalogs
Spot buying is typically hard to manage due to the fact that organizations depend on the wrong tools to bring it under control. Here are the few challenges that are present in spot buy catalogs:
1. Finding an item takes too much time
Spot buy catalogs require users to delve through an endless list of items before making a purchase. Additionally, catalogs are updated regularly to ensure that prices are up to date.
2. Often miss discounts
A procurement team or department is uniquely positioned to take advantage of bulk buying. However, in spot buying, there is no opportunity to take advantage of full inventory replenishments.
3. Can make purchases more pricey
Some employees of an organization may think that bulk buying a pot purchase is a good idea, thinking they are getting a good deal.
However, this is not the case. The employees who bulk buy spot purchases are at risk of overbuying. Thus, the procurement team has the upper hand in negotiating a better deal as they know better.
When is it useful and when is it Better to use Spot Buying?
Frequentlyasked questions
+ What is spot buying?
Spot buying is a purchase that is unplanned which is usually considered an emergency cost or a one-time buy.
+ How does it work?
One of the reasons why it happens is when the transaction is not complicated as it is inexpensive.
+ Is it useful?
Spot buying is useful for one-time buying goods or services and when an emergency arises.
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