2014 Trends in Procurement Services – Strategy Firms Slum It

- July 2, 2014 10:32 AM
Categories: Commentary, Industry News, Procurement Strategy & Planning | Tags: ,

Quick, what do venerated strategy consulting firms such as McKinsey and BCG as well as the streets of Brazil outside the nicer spots have in common? They’re both slumming it (although the type of procurement one might do in the back streets of Brazil crosses into categories that we don’t think have ever been professionally sourced).

OK, bad joke. But there’s an unmistakable trend in the market at the moment concerning firms that are better known for corporate strategy work building very significant practices in the procurement and operations area.

Consider first McKinsey, which for the first time (at least in our memory) had a booth at ISM’s annual conference. McKinsey having a booth? You got it. It was even staffed by a bunch of senior employees who were more than happy to answer questions about their practice and pass out their latest book (review to come) on the procurement sector.

According to someone I spoke with, McKinsey now has 8,000 consultants, one-third of whom are focused on operations consulting (and a third of those are focused on procurement). Just don’t ask them to do pure negotiations. That’s where they draw the line. McKinsey’s numbers, if you take their typical bill rates, would make them one of the largest procurement practices among all the major consultancies.

Boston Consulting Group (BCG), which was not at ISM, is also building out a practice in the area and is turning up in more places. Their focus tend to gravitate to such areas as organizational design, talent, supply chain strategy, etc. – beyond the procurement transformational basics. Our sources suggest material growth in the practice, but it is still a fraction of McKinsey’s size.

The emergence (and re-emergence in the case of McKinsey, which still takes the prize as having the one consultant who practically single-handedly changed how we look at procurement, Peter Kraljic) is not a surprise. Smart firms know where to sniff out growing and emerging demand within their clients. But perhaps the more important questions to ask have to do not with what will be come of these firms individually, but rather how large they will grow and how their margins will compare to Accenture, which has a strong foothold in BPO, managed services, consulting and even staffing within the area.

Surely while McKinsey or BCG would never like to admit it, there’s actually overlap (and substitution) for what an Accenture can do in the same client base –not to mention Deloitte, KPMG and others that also have significant practices competing for the same opportunities. After all, what isn’t outsourced entirely can still be massaged and improved.

And it can be implemented as well. Or so we hope.

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