Procurement outsourcing - powering business improvement
Mar 7, 2012 9:58:00 AM
The rebranding process we have recently gone through has given us amazing insight into the relationships we enjoy with our clients, and I'm very thankful for everyone's support and well wishes during the change. It has also enabled us to reflect on what our clients and the wider business community want and need from a procurement outsourcing partner.
One point that came up several times during the process was why procurement outsourcing is underutilised and underappreciated by many senior executives. Firstly, it seems that procurement outsourcing is often confused with 'traditional' business process outsourcing (BPO) with its 'lift and shift' to a low cost, offshore location approach, resulting in the same processes being run cheaper. The reality is that successful procurement outsourcing is altogether different - it's all about driving value by doing something fundamentally much, much better than before. Phil Fersht, Founder of Horses for Sources noted in a blog "While the rest of the outsourcing industry deals with FTE-based lift and shift, procurement executives are really interested in gaining expertise".
Secondly, the majority of past procurement outsourcing agreements have focused heavily on savings as the key metric and measure of success. As such, providers have been focused on cost reduction year after year to ensure savings targets were met. At around year three, the contract begins to fall apart as the law of diminishing returns sets in and the savings become harder to achieve. Furthermore, many senior executives have become frustrated with a large portion of reported savings failing to materialise on the bottom line. This misalignment between what the business receives and what the provider delivers means that many procurement outsourcing contracts are agreed upon with short sighted objectives, inhibiting the provider from acting as a true business partner.
Ultimately, senior executives are looking for a strategic partner to bring change, enhance management control, transform buying behaviour and deliver sustained improvements to profitability. As the procurement outsourcing market matures (Horses for Sources research predicting growth rates >15% pa over the next three years), procurement outsourcing providers are becoming more and more capable of ticking all the boxes on senior executives wish list - you just have to know which one to pick!