Friday Rant: Six Things Procurement Outsourcing Firms Are Hiding From You

The procurement outsourcing industry -- like nearly all BPO segments -- is founded on big numbers (volume, savings, revenue, headcount, etc.) and somewhat variable margin; sometimes low, sometimes surprisingly high. It's also an industry with surprisingly decent -- if not good -- marketing despite the criticism it occasionally receives in the market. But perhaps procurement outsourcing's biggest challenge in getting those who have committed to entertaining the notion of ridding themselves of part or all of indirect-focused procurement and putting the responsibility for savings in the hands of someone else is getting someone to actually pull the trigger on signing a deal let alone considering one.

Being in somewhat of a curmudgeonly mood this morning -- having had to crank out around 15,000 words this past week not to mention hitting other non-writing deadlines will do that to you -- I'll leave you with six more reasons to be circumspect of procurement outsourcing and to hold off squeezing that trigger finger, even if it's the right thing for your business, which it very well might be.

So without further ado, here are six things procurement-outsourcing firms probably aren't fully disclosing or telling you as you listen to their pitch. Granted, there are some exceptions to the rule in this list, but do your homework and listen as much for what potential firms are not saying as what they actually are.

1) The procurement BPO that's pitching you probably doesn't have experience and depth in complex, high-value categories in a similar environment to your organization. Sure, everyone has sourced paper clips and water coolers (and maybe even London to NYC business class seats). But double-click on the actual experience (i.e., more than one or two clients) when it comes to sourcing complex indirect and services within your industry. Ask for specific client and industry proof points that go beyond the one-hit wonder reference.

2) Labor costs will still play a material role in cost reduction. Any provider who tells you that labor cost arbitrage is only a small component of the material savings number when a majority of their employees are offshore is smoking something. And they better have a prescription for it (or one for truly understanding optimal procurement processes and category knowledge and fixing what's wrong before tossing it over the ocean).

3) Automation will focus more on removing unnecessary heads than on improving processes and knowledge. This is a tricky one. Nearly all in the procurement BPO market will claim to have an automation mousetrap. They'll parade out technology partners (either vendors or those they'll GC). But all too often, technology's role in BPO initiatives will focus on removing unnecessary heads or providing a pill popping-type approach to problems (e.g., abusing reverse auctions for one time savings in the wrong areas) rather than actually nailing the right business processes. As a process-focused example, try to understand your potential outsourcing partner's familiarity with sourcing optimization technology and how they would apply it to your categories. Blank stares or the "transportation only" answer is a good indication that automation and cycle time reduction will rule the technology day vs. process expertise.

4) They'd like to support aspects of direct material procurement initiatives but need to wait for the right moment to pounce when it’s less threatening. This "non-core" and "core" thing is nothing more than provider malarkey designed to make you feel less threatened. You can be sure if your BPO partner could go to a CFO and claim, with at least half a straight face, that they had any credibility to take on direct sourcing or supplier management capabilities, that they'd try.

5) They're not yet to the point of fully understanding the range of procurement technology and solutions that encompass both cost and risk reduction. For procurement BPO providers, technology is still all about cost reduction -- in the best cases from both an efficiency and effectiveness perspective. But few are actually thinking about risk mitigation and management, as they should be. While their knowledge of tools around e-sourcing, P2P and spend analysis may seem strong -- and in some cases it may be -- I'd argue quite strongly that most BPO providers are in the dark when it comes to supplier information management, supply risk management, contract management and the finer points of supplier performance management outside of what's in the textbook.

6) Guaranteeing savings is not the same thing as guaranteeing satisfaction. I'll leave you with one point in this regard. Even "hard dollar" savings that has any negative impact at all on how stakeholders actually view procurement -- and the vendors they need to work with everyday -- will not remain hard dollar for long, despite how the BPO bean counters calculate it to prove they've hit their numbers.

Enough of this rant. Maybe next week I'll put on a happy BPO face ...

Jason Busch

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