Growing the Market Pie: Expanding the Definition of Procurement BPO (Part 7)

Please click here for Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6 of this series.

The final area of expansion we see for procurement BPO focuses different aspects of direct materials with some overlap between individual current (and potential) offerings. Please note that many of these ideas represent Spend Matters' forward-thinking (or backward, if you don't like us) ideas. We haven't been pitched the more advanced versions of these yet by providers. But we'll be excited to see them if and when they materialize. However, you should assume that practitioners we speak with have articulated these areas as business needs.

The first area in this regard is direct material sourcing enablement that bridges procurement, supply chain and operations. In this regard, we expect to see firms that are doing direct materials today but are relatively quiet about it (e.g., Procurian, Proxima) to expand what they're up to. Future expansion in this area could go in multiple directions, including the intersection of commodity risk management (for both hedgeable and non-hedegable commodities) with procurement. In this regard, we believe that select BPOs are likely to team up with offerings from providers like Triple Point and SAP (Commodity Management) to deliver new types of services. We are also likely to see these BPOs eventually begin to influence specifications (as some are in packaging already).

Which brings us to the next component of potential direct materials procurement BPO: product cost management/product costing. Most manufacturers do a pretty horrible job of integrating design/engineering with procurement for enabling sourcing and category management teams to influence design thinking and decisions to avoid locking in unnecessary cost (and/or risk, for that matter, based on an available supply base). This isn't likely to improve on its own. So why not offer product cost management as a service for design/engineering and procurement teams to jointly tap into?

The IP here could be fascinating around leveraging shared benchmarks based on part attributes, specifications, etc. to drive truly intelligent should-cost modeling that companies could not achieve on their own. And it would also help procurement teams to identify the proverbial low-hanging fruit to go after for direct materials "sacred cow" categories that have not been strategically sourced before – or at least not well – based on variance from should-cost formula pricing/models across large sets of part families.

I could go on looking at this topic for days. But I'll stop here with the final word that procurement BPO has arrived -- and it's here to stay. We just need to expand our definition of what it is, get smart about it and open our minds to what is possible.

- Jason Busch

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