SIG Dispatch 4: Phil Fersht on the Future of Procurement Outsourcing (Part 1)

One of my friends and blogging partners-in-crime, Phil Fersht, gave a useful overview at SIG last week featuring trends, numbers and prognostications about the future of the BPO and procurement outsourcing market. Phil fancies himself a funnyman -- but he certainly had more people crying than laughing last week on April Fools Day before they realized the joke was on them. In any event, his presentation was much broader than just Spend Management outsourcing. In this post I'll try to zero in on the areas of procurement and supply chain that he focused on most.

Above all, what I found especially interesting is what we'll term the rise of knowledge process outsourcing (KPO) in the Spend Management arena. But what is KPO -- besides another three letter acronym that Gartner or someone else with far more analyst marketing smarts than me coined to confuse the market into calling them for more paid inquiry time?

KPO focuses on business intelligence and analytics specifically -- and some deals are missing one, two, or three digits from the usual procurement BPO price tags. Some KPO outsourcing deals priced at "$20K or less," according to Phil. But I'm not sure if "outsourcing" or "O" is the right last letter in the three-letter acronym. Perhaps "augmentation" or "A" would be better. For what KPO really means in Spend Management is an inexpensive way to get a third-party to perform research (e.g., supplier search, commodity analysis) without shelling out the big bucks to a consulting firm or taking on the fixed cost internally to hire an analyst.

One provider that I've met with in the past who fits this description perfectly is The Smart Cube. But this firm is far from alone -- dozens of providers are vying for procurement KPO work. According to Phil, KPO is often a foot in the door for providers. It is a "more analytically oriented -- less rote" skill set. Even consultants are taking advantage of it -- I've even known some boutique expert firms to outsource the research and data crunching aspects of their projects to KPO-focused providers in India.

Interestingly, Phil suggested that the skill set for KPO has the potential to shake up the educational background mix of those getting into BPO away from just IT or engineering-centric degrees. Rather -- and this is me speaking here -- KPO demands a more analytical, liberal-arts type of creative skill set -- it's the same reason McKinsey keeps hiring fewer MBAs and more MAs/PhDs for their teams. Indeed, while KPO is about getting a job done efficiently, it can also be just as much about information discovery, analysis and the soft skills to relay this information as anything else.

Enough on KPO. What are Phil's observations on the procurement outsourcing landscape in General? Phil believes that many procurement engagements in recent years used to be A/P dressed up as P2P. But this is changing. Strategic sourcing and full P2P processes are now often included in multi-scope BPO engagements. Spend data management / spend visibility, performance management/SLA monitoring and even contract management are now falling within the scope of procurement BPO as well. In all of these areas procurement BPO is truly taking on a global service delivery model approach. Today, 59% of projects have service delivery coming in part from India, 30% from North America, 29% from Europe, 11% from China, 4% from Latin America (I hear Venezuela makes for a great supplier nationalization center of excellence) and 2% ROW. In Phil's words, "Procurement BPO is now often delivered from multiple locations under a single contract."

Stay tuned for Part 2 of this post when I share some additional details on the Spend Management BPO landscape.

Jason Busch

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