“Direct Materials is the most under-innovated, untouched by modern technology of any spend area."“-Spencer Penn, Co-Founder and CEO, Lightsource
How can business-critical direct materials spend still be managed with legacy tools and spreadsheets?
The answer to this question reveals a long-standing blind spot for procurement that doubles as an urgent opportunity. In a volatile supply landscape, slow and manual sourcing processes are inefficient. They also drag down agility, cost competitiveness, and supplier collaboration at scale.
In this Art of Procurement podcast episode, I speak with Spencer Penn, co-founder and CEO of LightSource. He and his team are applying many of the lessons he learned at Tesla and Waymo to tackle direct materials spend challenges head-on.
Here, in Spencer’s own words, are some stand-out moments from our conversation:
Manual Sourcing Is Still the Default
“People are downloading files from their PLM, emailing them to suppliers, getting quotes back in spreadsheets, and then only at the very end of the process, plugging the number into their ERP system for payment...across the Fortune 500, 76% of procurement teams are using Excel and email as their primary sourcing tools.”
This workflow is time-consuming and it’s the root of a much deeper issue: procurement’s inability to scale effectively. Without a connected tech stack, teams are constantly reinventing the wheel and being forced into tactical firefighting mode. That kills strategic bandwidth and leaves money on the table every day.
Why Direct Sourcing Tech Stalled
“In the 80s and 90s, a lot of technology systems were first built around direct materials… Then in the early 2000s…the focus shifted to indirect material and tail spend… Out of it, though, we found the third wave, which was these S2P suites… Now, the most recent innovation…is intake to S2P, but it’s still all related to indirect.”
What stands out to me is how a lack of attention over time quietly reshaped priorities. While the spotlight moved to indirect innovation and stakeholder intake experiences, direct materials spend – which represents a much larger chunk of value in most organizations – became the assumed constant. That assumption is finally being challenged, and rightly so. If anything, direct spend deserves its own distinct approach.
Collaboration Over Power Plays
“If you can bring in engineering alongside procurement, alongside finance… The suppliers also are the source, a very underappreciated source of great ideas… We just need to make sure that the table includes everybody.”
Spencer’s framing here really resonates with me. Cross-functional collaboration is the bedrock of sustainable performance in direct spend management. Too often, procurement is handed a fully baked bill of materials with no time, no flexibility, and a cost structure that’s already locked in. Bringing everyone together early opens the door to innovation, not just negotiation.
Structural Cost Wins Are Multiplied at Scale
“We’d negotiate over things like door handles, 50 cents in a door handle. And you say, well, come on, 50 cents in a $35,000 car, it’s ‘who cares?’ But then…we’re making 10 million Model 3s. So that’s $80 million of not top line, but bottom line EBITDA at income impact directly from procurement.”
It’s easy to overlook “small” savings, until you multiply them. This is one of the most powerful realities in direct spend. When you’re operating at scale, every cent matters. The compounding effect of minor improvements across millions of units is staggering. And that’s exactly why procurement’s role in the early design and cost modeling phases is so critical.
Tech as an Enabler, Not Just Automation
“If… the technology is not a blocker but an enabler…you get much better outcomes. By housing the specifications…we are bringing design alongside the supplier interface, procurement, bill of materials management...”
There’s a key nuance here: technology shouldn’t just automate what we already do. It should elevate the way we work. The real value lies in tech that nudges teams toward better decisions through things like cleaner data, more context, and a shared view across stakeholders. Spencer makes a strong case for solutions that create this kind of connective tissue, not just digitize old workflows.
The Visibility Challenge
“Procurement is invisible… until it’s not.”
This quote might sound simple, but it hits on a universal truth.
When things go wrong, leading to delays, shortages, and cost overruns, everyone suddenly sees procurement. When things go smoothly, the work often goes unnoticed.
That’s the paradox we all live with. The opportunity now is to change that by making our impact visible proactively, not reactively, through data, influence, and strategic alignment.
Spencer’s perspective reinforces something I’ve seen time and again in my own career: procurement’s success in direct sourcing comes down to clarity, structure, and proactive collaboration. When you pair those with tech that actually reflects the way teams work (and scale), the results will inevitably follow.
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