What happens when there isn’t time for strategic sourcing? Businesses may find themselves in need of instant supplies and materials and must make a snap decision on suppliers – known as ‘spot buying’.
In this guide, DeepStream explores exactly what spot buying is and when it occurs – and offers tips for effective spot buying to help procurement teams get the most value from the process.
What is a Spot Buy?
Before diving into the nuances of how spot purchasing works, it’s important to understand what it is.
A spot buy is the unplanned, one-time purchase of goods or services outside of the regular procurement process. It is typically made to address an urgent supply need that cannot be fulfilled through current contractors or suppliers.
Typical situations where spot buying is required include sudden and unexpected spikes in product or service demand, a supply shortage or when a specific item is required at short notice.
Spot buys involve purchasing goods or services from new, alternative suppliers on a case-by-case basis – even though these purchases may be more expensive than bulk or retainer contracts – due to urgency driving up demand, along with a lack of negotiation leverage.
When is Spot Buying Required?
Spot buying is often required in situations where organisations face urgent or immediate procurement needs that cannot be fulfilled through their regular strategic procurement processes. Common scenarios include:
Sudden Increase in Demand
When there is an unexpected surge in demand for products or services, spot buying may be necessary to quickly acquire additional inventory or resources.
In the event of supply chain disruptions, production delays or unforeseen circumstances. Spot buying can help bridge the gap and ensure operational stability.
Specific or Unique Requirements
When a specific item or service is needed urgently and cannot be sourced through existing contracts or suppliers – spot buying offers an effective solution.
Spot buying may be required when there is insufficient time to go through the regular procurement process, such as during emergencies or time-sensitive projects.
How Does Spot Buying Happen?
A typical spot buying process looks like the following:
Step 1 – Identify The Need
Before the spot-buying process is triggered, an organisation must identify an urgent need or requirement for a product or service that cannot be filled by a known supplier or within an existing contract.
Step 2 – Supplier Search
The procurement team will look for alternative suppliers who can quickly provide the required goods or services.
Step 3 – Negotiations
Negotiations take place with the selected supplier to determine the cost and terms of the contract. The price point will typically be higher than a standard procurement contract due to the short notice demand for goods.
Step 4 – Purchase Execution
Once the terms are agreed, the purchase is made – often expedited as a priority to meet urgent demand.
Step 5 – Delivery and Payment
The goods and services are delivered, with payment being processed according to the terms agreed upon during the negotiations stage.
What are Spot Buy Catalogues?
Spot buy catalogues are designed to make the spot purchase process easier and more efficient for businesses in need. They are curated collections of products or services offered by pre-approved suppliers – specifically for spot buying purposes.
These catalogues provide a convenient and streamlined way for organisations to quickly identify and purchase items they need on an ad-hoc basis.
Spot buy catalogues typically include a range of commonly required items. Examples would include basic office supplies, equipment or specialist services.
These featured items or services often include pre-negotiated prices and terms, which allow organisations to expedite the purchasing process while maintaining control over costs and supplier collection.
So, when businesses identify an immediate need for goods or services and risk spending over the odds due to supply and demand factors, these catalogues can provide an attractive balance between spot buying and strategic sourcing.
Three Common Sourcing Strategies for Spot Buying
While spot buying is an instant and short-term solution to procurement emergencies, there are certain strategies that can make the process more efficient for businesses in need. Three common types of sourcing strategies for on-demand purchases include:
Spot sourcing refers to the act of finding and engaging with new suppliers on a case-by-case basis to fill immediate or urgent demand for products and services. It involves identifying new or alternative suppliers specifically for spot-buying purposes.
Supplier Network Sourcing
Supplier network sourcing involves leveraging existing supplier networks or platforms to quickly identify and connect with potential suppliers for spot buying. These networks can provide access to a wide range of pre-vetted suppliers who are ready to fulfil immediate procurement needs.
Spot Buy Catalogue Sourcing
Spot buy catalogue sourcing involves utilising curated catalogues of pre-approved suppliers, products or services specifically designed for spot buying. These catalogues streamline the spot buying process by providing a pre-negotiated selection of items that can be quickly purchased to meet immediate needs.
What Are the Common Challenges with Spot Buying?
While spot buying provides a convenient solution to unexpected procurement challenges, it can come with various risks or pitfalls compared with along-term strategic sourcing strategy. These include:
Due to the urgency of requests and lack of negotiation leverage, spot buying usually comes at a higher cost.
Identifying reliable and trustworthy suppliers for spot buying can be challenging, as there is limited time for comprehensive evaluation and due diligence.
Ensuring the reliability of products or services from new or alternative suppliers can prove more difficult without prior experience with the supplier or a strong working relationship.
Spot buying requires expedited decision-making and execution. This places additional pressure on procurement teams to quickly identify suppliers, negotiate terms and complete purchases.
Lack of Contractual Agreements
Spot buys typically lack the protection and benefits of long-term contractual agreements, leaving organisations more vulnerable to potential risks such as poor vendor relationships and communication.
How to Simplify the Spot-Buying Process
Spot purchasing can prove expensive and stressful compared with strategic sourcing –and, therefore, businesses will try and avoid having to source goods at short notice.
However, in situations where spot buying cannot be avoided, there are best practice steps to achieve the quickest and most cost-effective procurement possible. To simplify the spot buying process, consider these key steps:
Pre-Approved Supplier Networks
Establish a pre-approved network of suppliers who are vetted and ready to fulfil spot buying needs. This reduces the time and effort required for supplier evaluation.
Develop standardised terms and conditions for spot buying, including pricing structures, payment terms and delivery expectations. This streamlines the negotiation process with suppliers.
Spot Buy Catalogues
Create catalogues of commonly required items or services for spot buying. These catalogues can include pre-negotiated pricing and terms, simplifying the selection and purchasing process.
Clear Approval Process
Implement a clear and efficient approval process for spot buys to ensure timely decision-making while maintaining appropriate oversight and control.
Simplify Spot Buying with DeepStream
DeepStream’s sourcing software speeds up the spot-buying process – getting you from source to contract quicker than ever – without compromising on accurate supplier data.
Our intuitive platform allows users to pre-qualify suppliers, invite them to bid on an RFx, evaluate responses and then award to the winning supplier and create a contract. Enjoy confidence in your immediate procurement requirements and avoid ineffective spending and low-quality vendors.
Frequently Asked Questions (FAQs)
Q: What is an example of a spot buy?
A: An example of a spot buy would be a last-minute purchase of goods or services to fill an immediate need, outside of the regular procurement process – such as a furniture manufacturer buying raw materials to meet a sudden, unexpected spike in demand for sofas.
Q: What is spot buy pricing?
A: Spot buy pricing refers to the cost associated with making a one-time, unplanned purchase of goods or services outside of regular procurement contracts or agreements. It typically involves negotiating prices case-by-case for immediate or urgent needs and leads to increased prices compared with those available through strategic sourcing.
Q: What is the opposite of spot buying?
A: The opposite of spot buying is strategic sourcing. Strategic sourcing involves a planned and systematic approach to procurement, where long-term contracts and relationships with suppliers are established based on careful analysis, negotiation and evaluation.
Find out more about strategic sourcing and its benefits in our helpful guide.