Procurement Outsourcing: A.T. Kearney’s Unique Take on BPO (Part 1)

At the SIG Global Sourcing Summit earlier this month, I heard a number of presentations on the procurement BPO market. In some of the sessions, practitioners and their advisers presented their own case studies and analysis either of the early stages of their experience outsourcing parts of the procurement function or their experiences further down the implementation and benefits realization path. And in others, consultants and analysts led the discussions on their views of the procurement BPO market (incidentally, you can download Spend Matters and HfS' recent procurement BPO research if you're interested in the topic). In a series of posts looking at a number of learnings from the event in the procurement BPO area, I'll share some of the highlights and recommendations that jumped out at me.

Beginning with a presentation from AT Kearney Principal Rodrigo Slelatt, I'll share a few of the venerable consulting organizations perspectives on the direction and momentum of the procurement BPO market. In his talk, Slelatt suggested his firm is currently forecasting a procurement outsourcing growth rate of 12.4% this year and 12% in 2012 (up from 10.6% in 2010 and 6.6% in 2009). From an overall revenue perspective in the outsourcing market factoring in HR, customer care, F&A and procurement, Kearney suggests that procurement BPO will comprise roughly 2% of the overall outsourcing market in 2012. This may sound low, but it's double the 1% figure of 2007. Curiously, what's most interesting about procurement BPO adoption is that practitioners have been overly optimistic about their projections in embracing the model. In 2007, for example, 12% of respondents expected they would outsource aspects of strategic procurement (e.g., sourcing) by 2010. The actual number ended up being 5%.

Slelatt provided a useful operating model that gave a high-level look at the different pros and cons of procurement outsourcing by initiative types. For example, for category management outsourcing, Kearney's research findings suggest that companies can drive a range of previously unknown benefits from certain programs, especially in areas where skills and know-how are "seldom present" in-house. Yet these efforts also require significant change management and "most often requires [organizations] to pay high fees for service" relative to hiring expertise in-house. Curiously, one of the cons of P2P (tactical procurement) outsourcing Kearney picks up on is that such a model may lead to "sub-optimal" contracting. Spend Matters experience suggests that contract execution, management and administration is one of the secret sauces of the better procurement BPOs in the market, yet ironically, at least one of these top providers focuses little on P2P initiatives as a driver of procurement BPO efforts.

Again, for further reading on the subject of procurement BPO, you can download, for free, Spend Matters and HfS' latest joint research on the subject:

Designing an Optimal Procurement BPO Program: Process Expertise and Realized Improvement
Tips for Making the Promised BPO Benefits Real – Alignment, Focus and Integration

Jason Busch

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