When it comes to best practices around company and BPO provider incentives in the overall total cost management arena (inclusive of supplier performance management), Bill suggests it's a certainty that you'll need alignment at the compensation level between company and outsourcing firm. Otherwise, he points out, you'll have an overall program that will be imperfect and incomplete in how it measures actual savings performance and program effectiveness at the stakeholder level. While the evolution of supplier performance management as a central component of BPO thinking is just starting to evolve, there are a number of other fundamental changes that continue to take shape in underlying procurement BPO market dynamics.
Bill suggests that in the history of procurement BPO, "big deals had to be big deals to drive savings initially. But once offshore providers entered in the equation, there was enough margin opportunity to focus on smaller levels, which in turn gave much greater flexibility in going after select opportunities including specific categories/commodities, processes and geographies." And now, you can still do a "big bang type deal" on a region basis -- or global, although those deals are few and far between. On the technology side, Bill believes the evolution of enabling tools is changing the market as well. SaaS and cloud-based tools offered by BPO providers -- either their own tools or customizations of third-party solutions -- are becoming an integral component of the procurement BPO value proposition.
Looking forward, Bill believes the next logical move for the procurement BPO market is to pay more attention to direct materials. Although, the value proposition "may be different than just enabling big savings of indirect source-to-pay" programs. On the direct side of the house, we're likely to see transactional and analytical support, even perhaps when it comes to global sourcing (e.g., boots on the ground). We're also likely to see "a broader expansion into supply chain management a -- a closer coupling of the two offerings." This may also include "logistics management including making decisions about incoming shippers." Bill suggests that his firm has "seen one service provider offer to take over on of their client's warehouses so they could drive better process discipline," as an example. In this particular case, it was the client, and not the BPO provider, who was not ready to embrace a third-party BPO solution in this area.
No doubt looking forward, Bill feels that a combination of "process consistency and offshore labor can add more value for the same dollar in emerging places." But we'll also "also continue to see the level of automation in solutions continue to increase." Process knowledge will also matter tomorrow as much as it does now. As Bill offers up, "Right now, strategic sourcing capability is a big differentiator [for some firms]...Only a small subset do it right, but they're all pursuing it."
In Bill's experience, no firms currently stand out amongst all others in the P2P process and technology area. In his words, "I've seen great innovation from a lot of these companies; a lot are very good at leveraging systems knowledge. But I would not pick out a single leader, as there are a "wide variety of options available" in the P2P outsourced arena. What's essential, Bill observes, is as part of an implementation, "building in the appropriate emphasis on change management and the right amount of transformation." Good service providers "can adapt to how processes are defined" but it's critical to ask what tools are available (from whom and to whom, which can be nebulous in the scoping phase).
Moreover, organizations considering P2P BPO should inquire about how much handholding is built into process, and what options are available to end-users to make their lives easier. As we all know, if "there is really not a compelling reason to cooperate, business users will still go off grid, buying on their own and finding a way to get invoices paid." In Bill's experience, "a lot boils down to how complex the procurement process it is. Is it easy for the users or not? That is key to driving adoption with or without a service provider. Service providers can be great accelerators, but they need to be used intelligently for P2P enablement rather than as a crutch."
Stay tuned as our discussion with Bill continues, turning to his views on the leading procurement BPO providers are in the market.