Spend Matters welcomes another guest post from Ken Hamilton, Senior Director of Sourcing Solutions at Xchanging.
In Part 1 of this article, I analyzed common pitfalls and challenges that can hinder procurement outsourcing (PO) relationships and their longevity. As I noted, Everest Group reported that PO is a rapidly growing market with almost $220 billion of client spend currently under PO management. Yet, PO delivery road hazards have led to a less-than-favorable contract renewal rate. The challenges that I outlined are by no means the only ones that exist; rather, they are the most common ones that I have seen during my time in the industry.
So what are the steps that both the PO service provider and client should consider in order to avoid some of the pitfalls I described in my earlier article? Here are a few thoughts to consider:
Put a strong governance process in place. Governance meetings are critical for PO success and its sustainability. It is not uncommon for organizations to avoid, delay, and/or miss governance meetings. Avoid such misses and delays at all times. Ensure regular governance meetings are set with a clear agenda, objectives, actions, and follow-ups.
Develop common objectives and deliver collaboratively. The power of the PO team, the retained procurement organization, and the stakeholders should not be underestimated. Collaboration between these three players in setting objectives, developing strategies, and implementing them to continuously improve the outcome is critical for the success of PO and in delivering the expected value to the organization.
Set realistic savings expectations. More is not always the right answer, especially in year one, where activities are focused on transition; change management; spend, contracts, supplier identification, and analysis; category strategy refinement; and more. Companies that set realistic savings, especially in year one, have proven to be more successful in reaching their commitments.
Look for an assertive PO provider. A PO service provider must be able to transform. Transformation requires change. Change requires doing things differently, which is not always popular. Communication, clarity, flexibility, and the art of saying “yes” or “no” are critical for a successful transformation.
Avoid building a retained organization with the same role as that of the PO provider. Two teams with the same roles and responsibilities increase cost, lower ROI, and create conflicts and confusion for stakeholders and suppliers. This ultimately lowers the success and outcome of the expected value.
In summary, the market is maturing, and the need for outsourcing certain functions will continue to grow as companies focus more on their core proposition. There is no question that the BPO business, and specifically, the procurement outsourcing business, is growing. But there are some challenges that this industry faces as to sustaining the overall value of the delivery model. With that in mind, the above approaches that can be easily taken by both the potential client of procurement outsourced services, and the service provider should address some of these challenges.
If you come away remembering one piece of advice from this article, it should be this: Have an understanding of the power of collaboration and communication in driving sustainable value in procurement outsourcing.