The indirect buy is fraught with challenges. It's complex, diverse and fragmented. It touches nearly everyone in an organization.

Roberto Magaña, vice president, purchases, for P&G's global business services unit in Cincinnati, understands this. Addressing these challenges, he is working to develop the global capability of his organization and execute sourcing strategy in each region of the world where P&G has plants and offices.

"As we in purchases are able to pull together the spend globally and leverage it in the marketplace, the opportunity is very significant in savings, service and innovation," Magaña says. "We see much more value, in fact, a disproportionate value, from the market, as we manage the spend in a more strategic way."

He views these activities as a journey and is building upon the successes of his predecessor.

When Magaña assumed his current post four years ago, the global business services purchases organization had results of spend analysis activities in hand and had already set up service centers to process purchasing transactions. The spend analysis provides him and his team with valuable data on and an understanding of the scope of the indirect spend at P&G. Streamlining the purchasing process frees up resources so they can focus on developing global sourcing strategy.

With that, Magaña set to work.

With 24 years of purchasing experience—in roles with increasing responsibility at P&G, including time working in Mexico and South America—Magaña manages sourcing strategy for all indirect spend categories the consumer products company needs to operate, such as plant services and supplies (MRO), IT (information technology) and professional services.

He is also responsible for procurement operations in company service centers located offshore in Costa Rica, Romania and the Philippines that process all of P&G's purchasing transactions. P&G uses purchasing tools based on SAP ERP (enterprise resource planning) software.

P&G takes a global category management approach to its indirect buy. Leaders in the global business services purchases organization develop sourcing strategy and execute that strategy in regions of the world where they have responsibility.

As Magaña sees it, it is key for the organization to align itself with P&G's businesses and aggregate their requirements. Once it has accomplished this, the global business services purchases organization uses a traditional multi-step sourcing process to set strategy.

"Before we begin the process, there is an element that connects in a very clear way the benefits of aggregating the buy with the business or individual customer," he says. "Then, as we execute, we need to think not only about the business, but of the individual customer so we have a strategy to address his needs, because at the end of the day the service is going to be delivered to the individual plant, office or employee."

This thinking, which Magaña says differentiates indirect from direct purchasing, permeates every aspect of P&G's global business services purchases organization.

"The fragmentation and diversity of the indirect spend requires very specialized knowledge and also the ability to aggregate," says Magaña.

For these specialized resource roles, P&G puts in place purchasing professionals who have a background of traditional sourcing expertise blended with business acumen and customer service skills. Of the customer service skills required, communication is critical "to help build momentum and credibility for the organization and its strategies," he adds.

Magaña's thinking of his organization serving the individual customer is evident throughout the strategic sourcing process.

"In the long term, we want the best structural costs," Magaña says of the company's indirect suppliers. "Yet quality and ongoing customer service also are very high on our list of selection criteria. We see the services supplier as an enabler to all our business partners, from marketing to legal, to do their jobs, for the whole company to operate in the most effective and efficient way. The only way we are going to do that is if we have suppliers with the right quality and service." For instance, in a major IT project, reliability and on-time delivery are equally as important as cost.

In the supplier selection process, the global business services purchases organization also takes into account the diversity or type of category of spend. Take storeroom suppliers or spare parts for example: Responsiveness is a critical quality in a supplier that provides P&G with these MRO items. It may not be quite as important for another spend category.

To measure performance of suppliers that provide indirect goods and services to P&G, the purchases organization uses three tools: a joint business plan that ensures the supplier understands the needs of the business and its expectations; a high level score card that monitors cost, service levels, quality, delivery and other metrics and detailed assessments that delve into process measures specific to the spend category to ensure the supplier provides the business with goods and services that meet its specifications.

As it develops global sourcing strategies, the purchases organization at P&G is finding, like buying operations at other world-class companies, that oftentimes supplier capability is not keeping pace. This is especially true for indirect, a category of spend in which local companies traditionally make up the supply base. But this is changing.

As the purchases organization develops sourcing strategies, its aim is to enhance and have the same capability from suppliers globally.

"We see suppliers develop from local to regional, and, in some spend areas, from regional to global," says Magaña. "We believe that we are leading some of this as we aggregate the spend first locally and then globally and put it to the marketplace. We are able to find suppliers that are able to grow with us and to help them become more global in the way they see the business and the way they manage the business."