The Booming Procurement Services Market: Backdrop and Challenges

With all the focus on Software as a Service (Saas) in the procurement market, many forget the importance of procurement services as a, well, service. These services include not just consulting, but business process outsourcing (BPO), knowledge process outsourcing (KPO), supplier management, quality and auditing services, content/information services, network services, intelligence services, training/certification services, adjacent services (e.g., working capital, asset disposition, transportation, legal, group buying, M&A support). Some of these areas are procurement-specific, but many also are part of a broader services spectrum.

Procurement practitioners are getting smarter and more sophisticated in how they buy procurement services; however, they do face numerous challenges that prevent them from unlocking more value from the market and making their lives easier:

  • Typically, procurement organizations do not have a lot of their own budget being spent externally; a common range is around 0.1-0.3% of spending (obviously more if they’re more heavily outsourced).
  • As such, they will work with other stakeholders to latch on to their budgets for technology (IT), talent management (HR), working capital (Finance), etc. But this is a dual-edged sword, and is often manifested when McKinsey (et al) has the CEO’s ear and uses its magical database to run the G/L and AP history against to highlight x% additional savings that procurement should be delivering.
  • The specter of outsourcing will always loom, and as procurement organizations themselves refine their own internal service delivery, external service providers can be “co-opetition.” The CPO needs to have a clear point of view on external services firms and whether they just deliver results or also help build new capabilities.

 

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