What is Spot Buying? A guide to keep it compliant and under control

In 2024, procurement teams are increasingly turning to spot buying as a flexible, fast solution to manage unpredictable supply chain demands. But what exactly is spot buying, and how can it be optimized to meet procurement objectives efficiently?

In this guide, we’ll cover:

• What spot buying is and why it happens
• The differences between spot buying and strategic sourcing
• Common challenges with spot buying and how to overcome them
• When spot buying is a better procurement strategy
• How Keelvar can streamline your spot buying processes

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Why does spot purchasing happen?

Spot buying refers to the procurement of goods or services on an ad-hoc basis, usually when urgent or unexpected demand arises. This type of purchasing is often used when companies can't rely on their long-term contracts due to sudden changes in the market or supply chain disruptions. Unlike strategic sourcing, which is planned well in advance, spot buying is reactive and requires quick decision-making.

The reasons for spot buying can vary, but some of the key factors include:

• Urgent or unexpected demand:
  Companies may suddenly require goods or services that weren't planned for in the usual procurement cycles, such as emergency repairs or unforeseen spikes in customer demand.
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• Market price fluctuations:
  The procurement landscape is volatile, and prices for materials or freight can shift rapidly. Spot buying allows businesses to capitalize on favorable price drops when locking in long-term contracts isn’t feasible.
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• Supply chain disruptions:
  Natural disasters, factory shutdowns, or geopolitical events can disrupt supply chains. Spot buying offers a way to secure alternative goods or materials when standard suppliers can’t meet demand.
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• Limited availability of goods:
  Some products are only available for short windows, either due to production cycles or market scarcity. In these cases, spot buying ensures the procurement of goods during those limited opportunities.

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The dilemma with spot buying

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While spot buying can provide flexibility, it also comes with significant challenges. One of the primary issues is cost. Spot purchases are often made at higher prices due to time constraints, which can lead to increased procurement spend over time. Additionally, spot buying is typically inefficient, as it bypasses formal e-sourcing processes and focuses solely on securing the necessary goods as quickly as possible.

In many cases, spot buying can lead to rogue spend, where companies purchase from non-approved suppliers. This lack of oversight makes it difficult to manage costs effectively and ensure consistent quality. Furthermore, without a structured contract in place, the risk of disputes over pricing and delivery terms increases.

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Three common sourcing strategies for spot buying

In modern procurement, there are three key strategies for managing spot buying effectively. These strategies allow businesses to maintain flexibility while optimizing for costs, supplier relationships, and delivery times.

Spot sourcing

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This strategy involves using established supplier networks to fulfill urgent procurement needs. Companies often rely on their existing relationships with trusted suppliers, which can lead to more reliable service and favorable pricing. Spot sourcing works well when organizations need a quick turnaround but don’t want to risk using unfamiliar suppliers.

Supplier network sourcing

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Supplier network sourcing leverages pre-negotiated spot-buy catalogues, where prices and terms are pre-set for certain goods. This method reduces the time spent negotiating and is especially effective for frequently purchased items. It allows companies to speed up their procurement processes while still maintaining control over costs and quality.

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Spot-buy catalogue sourcing

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This approach is ideal for industries that face frequent market volatility or fluctuating demand. Companies can use this method to procure goods or services that are difficult to secure under long-term contracts. For example, freight procurement during peak seasons may benefit from spot buy catalogues that offer competitive pricing based on current market conditions.

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What are the common challenges with spot buying?

Spot buying can present numerous challenges, particularly when it comes to managing costs, supplier relationships, and contract terms. Here are some of the most common issues:

• Higher costs:
  Since spot purchases are typically made under urgent circumstances, prices are often higher compared to negotiated contracts.
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• Supplier evaluation:
  There’s little time to thoroughly vet suppliers, increasing the risk of poor-quality goods or services.
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• Quality control:
  Without the ability to negotiate detailed contracts, companies may face inconsistencies in the quality of the goods or services they receive.
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• Lack of contractual agreements:
  Spot buying often occurs without formal contracts, leading to potential disputes over pricing, delivery times, or quality standards.

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When is spot buying better as a procurement strategy?

While strategic sourcing offers long-term stability, spot buying is more suited to situations that demand flexibility. Here are some scenarios where spot buying is a more effective strategy:

• Flexibility and responsiveness:
  In emergencies or unexpected demand surges, spot buying allows businesses to react quickly.
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• Cost benefits:
  When market prices drop unexpectedly, spot buying can help companies take advantage of temporary cost savings.
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• Risk mitigation:
  For businesses operating in volatile markets, spot buying can help avoid risks associated with supply chain disruptions or changing market conditions.

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What Are the common challenges with strategic sourcing?

While strategic sourcing is essential for long-term procurement planning, it also comes with its own set of challenges.

For example:

• Supplier selection complexity:
  Finding the right supplier that meets quality, cost, and timing requirements can be difficult.
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• Cost vs. quality trade-off:
  Companies often face the dilemma of choosing between lower costs or higher quality in their sourcing decisions.
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• Data accuracy and availability:
  Poor data can hinder effective decision-making, particularly in complex sourcing events.
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• Sustainability and ethical sourcing:
  As companies prioritize sustainability, finding suppliers that meet both ethical and cost-effective standards can be challenging.
  
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When is spot buying required?

There are specific circumstances where spot buying is the best or only option, such as:

• Unexpected demand surges:
  Sudden increases in demand for products, materials, or services.
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• Market volatility:
  When prices for goods or services fluctuate, spot buying can secure better deals.
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• Supply chain disruptions:
  Events like natural disasters or production halts that interrupt regular supply channels.
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• Urgent project requirements:
  Projects with tight deadlines that can’t wait for the typical procurement process to unfold.

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Streamline your spot buying processes with Keelvar

Much like today’s market, the bidding process can be complex and unpredictable – especially when buyers are no longer in a position to drive down costs. With the current boom in spot buying, leveraging human labor to manage sourcing events and rates is particularly inefficient.

To combat the influx of challenges, procurement teams have turned to sourcing technology such as Keelvar's to add value and solve problems in new ways. Optimization allows sourcing teams to balance cost and speed objectives, give suppliers flexible bidding options and go beyond the “lowest price wins” award model. With the right esourcing solution, teams are provided the capability to handle everything from spot bids to large-scale RFPs, with a supplier-friendly interface that improves your award decisions.

Many leaders are also looking to procurement automation to establish spot bidding and mini-tender events within minutes. Up to 90% of this work can be automated, improving scale and efficiency. Talk to our team today to learn more about making Keelvar's solutions work for you.

Keelvar customers following a dynamic market sourcing strategy are outperforming the competition to get better rates and capacity  – read more in our free eBook.

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Spot buying FAQs

What is the difference between spot buying and strategic buying?
Spot buying is typically for immediate, short-term needs, while strategic buying focuses on long-term procurement goals and contracts.
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What is spot buy pricing?
Spot buy pricing refers to the price set for a one-time purchase, often reflecting current market conditions rather than long-term negotiated rates.
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What is tactical buying?
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Tactical buying refers to short-term, reactive procurement decisions made to meet immediate business needs, often aligning closely with spot buying.

‍What is Dynamic Market Sourcing?‍

Dynamic Market Sourcing refers to a flexible procurement strategy where sourcing events are continually adjusted based on real-time market conditions. Instead of relying solely on traditional, long-term contracts (like annual RFPs), dynamic market sourcing allows procurement teams to make quicker decisions, adapting to fluctuations in demand, prices, and supplier availability. This approach is particularly useful in volatile markets where prices and supply chain conditions can change rapidly.‍

How does Dynamic Market Sourcing differ from traditional sourcing?

Traditional sourcing often relies on long-term contracts and annual RFPs, where prices and terms are locked in for 12 months or more. Dynamic market sourcing, on the other hand, focuses on short-term, flexible agreements that are frequently updated. This approach provides more agility in responding to market changes, ensuring businesses can quickly adjust to shifting supply chain conditions.‍

What tools support Dynamic Market Sourcing?

Platforms like Keelvar’s intelligent sourcing solution are essential for running dynamic market sourcing strategies. Such a tool allows procurement teams to automate bidding events, optimize supplier selection, and continuously refresh procurement strategies to align with real-time market data.