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Global myths of procurement outsourcing: New series introduction

Oct 22, 2012 7:14:00 AM

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In this post (part 1 of our latest series), I would like to offer a simple definition of ‘'procurement outsourcing'’ and set the scene for why Finance, and other business leaders, should be placing a greater emphasis on managing their cost base.

In our discussions with Finance, Operations and Procurement executives, we hear a great variety of opposing opinions and beliefs around procurement outsourcing. There’'s clearly a lot of confusion out there - and that’s not a good thing.

This series aims to dispel some myths. And to set the record straight.

But first, given the differences of opinion globally, let’'s start by defining what we mean by procurement outsourcing.

To be clear, when we talk about procurement outsourcing we are talking about a third party taking full responsibility for handling an organization'’s third party cost base - on an actively managed, long-term basis. This could be the whole cost base, or a portion of it. And it could mean working alongside an existing in-house team, or providing the whole team.

There are hundreds of processes that fall under this. However, we can group them into the following high level areas:

  • Leadership and management of the function: procurement strategy and leadership, capability development, performance management, supply chain risk, linking procurement's objectives to the corporate objectives, etc.
  • Business partnering: building relationships and trust from the C-suite down, driving demand for procurement'’s services, influencing, managing change
  • Category management: sourcing, supplier relationship and performance management, contract lifecycle management and long term planning of a category
  • Data management and analysis: accounts payable, travel & expenses, supplier data, savings tracking, compliance reporting, etc.
  • Procure to Pay (P2P) process: the transactional end of the procurement process

Hopefully you will find the series informative and enlightening.  At the very least, I hope we are able to stimulate a debate and shift some paradigms.  In doing so, my aim is to help develop what is a relatively under developed area of business management - one which if strategically utilized can generate a significant return on investment, and improve profitability and shareholder value.

We'’ll be starting with the myth that the return on investment from procurement outsourcing comes from labor cost arbitrage

Click here to access the related posts: Myth 1: ROI comes from cost reductions, Myth 2: the ROI from procurement outsourcing is insufficient, Myth 3: PO damages stakeholder relationships, Myth 4: PO results in a loss of control and increased risk and Myth 5: PO means off-shoring

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