Spot Buying: A 2024 Complete Guide

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.

• 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.

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.

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

‍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

‍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.

Spot-buy catalogue sourcing

‍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.

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.

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.

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.

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.