By Graham Moore
While Procurement Outsourcing (PO) is a less mature area of BPO than other functions such as Finance and Accounting (F&A), its popularity is growing rapidly, most demonstrably during the past 12 months. This is occurring as more and more companies are becoming aware of the significant benefits moving procurement functions “out of house” can offer.
However, trying to determine exactly what areas of procurement should be outsourced and what areas should remain retained inside company walls can be a tricky proposition.
As a Chief Procurement Executive, I might consider outsourcing all or part of my procurement operation based on a number of determining factors. Following is a brief review of a few key factors for anyone tasked with determining exactly what functions of procurement should be considered “contenders” for outsourcing.
Consider Your Coverage
If owning the global procurement organization within my corporation, I may have an adequate number of resources and expertise across my team for my domestic market, yet outside of that I may not have my “arms around” all other spending and or have very little or no visibility of the all important transactional data, related to the what the rest of my organization is doing. As a CPO in the US, for instance, with aggressive savings targets, I will need to tackle the other spending outside the US (my non-domestic market) head-on and more aggressively in order to achieve my targets. I will need to obtain global visibility of all expenditure to drive compliance, harmonize my processes and enable leveraged and aggregated sourcing opportunities.
If I am to seriously tackle the ongoing procurement processes and sourcing activities outside of my domestic market, then a third party can support geographies that I can’t. They can provide the coverage, resources and expertise I may not have or can continue to justify to my CFO.
A dedicated “global buying center” which can capture and turn all “maverick purchases” into competitively sourced items will drive better outcomes. A managed “global buying center” will allow me to capitalize on the transactional data going through the “one environment” and will enable me to manipulate the data to make better informed sourcing decisions, either to be performed by me or the selected provider to deliver lower cost and more efficient outcomes.
Domestic Procurement Can Also Benefit from BPO
You don’t have to be a global organization to obtain sizable benefits from outsourcing areas of the procurement function. If I am a US-located manufacturing company, typically my biggest pressures are the P&L-impacting, direct materials core-procurement activity. Basically, anything and everything I have to procure in order to manufacture my end product.
As a result, I can’t always justify the allocation of my scarce dedicated resources to non-core, indirect spend areas, and although though I do have pressures to reduce costs and they are a necessity to run my business, the activity has nothing to do with why I am in business. These spend areas make the ideal candidates for outsourcing, either selected processes, categories/commodities or even all of my indirect categories and processes.
I can manage my provider as an extension of my business, have the opportunity to redeploy my in-house resources previously dedicated to indirect procurement and have them focus on direct procurement, or simply release them and reduce my overhead.
Better Procuring through Technology
When considering whether to outsource selected procurement functions, executives should also fully investigate the many advanced procurement technology solutions which can ease the outsourcing process and provide substantial increases in procurement efficiency, effectiveness and ROI. Pushing procurement transactions through a single procurement IT platform allows you to obtain harmonized processes, visibility and drive up the organizations compliance. You can “corral and funnel” users to the preferred suppliers and negotiated deals.
In addition, procurement executives need to keep in mind that data is king. You need smart, cleansed data from which you can gain and use as actionable intelligence. Otherwise, the procurement staff will be completely distracted in making sense of or sorting data rather than performing their core activities. Intelligent application of outsourced technology allows procurement executives to “close the loop,” end-to-end across the source-to-pay framework, with every procurement action going through a single, controlled environment.
Taking Procurement to the Next Level
There is one other aspect to procurement outsourcing I’d like to briefly touch upon before wrapping things up. That is the aspect of maturity, or a procurement organization becoming a victim of its own success. A CPO may have successfully built up an in-house procurement organization and framework which works perfectly well, with no serious issues. However, as time goes by they may find they have taken things in-house as far as they can go in certain areas and that over time savings have dwindled, yet the same year-on-year pressures from the CFO to get more with less remain.
Even though things are effectively working, the application of BPO will boost your performance and take the procurement function to the next level, creating new savings and growth opportunities that would otherwise not have been achievable on your own.
Graham Moore is Head of Global Business Development, Procurement BPO at Capgemini