Procurement Outsourcing is Different – So What?

Spend Matters welcomes this guest post by Teja Kappagantula from GEP

Outsourcing traditionally has a very constricted meaning with the intended primary objective for the decision to outsource is largely to save costs. Nothing can be farther from the truth for a function such as procurement. With the stakes higher than ever before for the procurement functions across the board, decisions to outsource and associated objectives seem to be getting more complex by the day. So are the expectations from the service providers. This complexity is also the reason why procurement outsourcing has to be embraced differently from outsourcing in other functions. A few good things to remember, with regards to procurement outsourcing:

All important “Why?” question: Procurement outsourcing without proper consideration or thought to answering the question – “Why?” is a sure shot set up for failure of any such program. Stories of disastrous ERP implementations are dime a dozen. Similar, is the case of procurement outsourcing programs that went miserably wrong just because the client organization did not fully analyze the need for onboarding an outsourcing service provider.

“You and I” instead of “We”: Oft-repeated mistake by many client organizations is to think that their job starts and ends with onboarding a service provider. The rest is assumed to automatically fall in place, without any thought to the fact that setting up the program for success is a mutually beneficial goal and imperative. There are many instances of the tail-spend programs that could not achieve the target spend coverage. These happened because the client organizations just thought that getting a service provider onboard and announcing the same within the organization is all that they have to do, while the targets for increased spend coverage and/or savings are the program KPIs and hence the sole responsibility of the service provider.

Transition is not overrated: It is not just sufficient for procurement to treat the service provider’s team as an extension of the internal team. It is also important that the entire organization is able to feel this in a seamless fashion. The first 3 to 6 months are the most crucial ones as they determine how successful the association can be. Transition planning and the soft launch of the program are steps that should not be missed. Transition planning or the due diligence phase is when the service provider is able to chalk out a program that best fits the objectives of the client organization. Soft launch or soft go-live is the pilot phase when the program designed during the transition planning is rolled out with restricted scope to test and demonstrate the success of the concept to all the stakeholders involved. Both these phases of transition are extremely crucial – the client and the service provider need to work very closely during these to ensure the success of the program.

Performance measurement is a serious business: Measuring a program’s success is a noble goal. However, if the measures used do not match with the stated program’s objectives, then the program’s success will always be overestimated or underestimated. If you measure the performance of a strategic sourcing program through a KPI such as “number of new suppliers successfully on boarded” can potentially overestimate the success of such a program as strategic sourcing programs invariably will result in some shake up of the existing supply base. It is not just important to know what to measure. It is also essential to know how to measure and who is accountable.

For more interesting thinking on procurement, visit the GEP Knowledge Bank.



Voices (2)

  1. Roman:

    Excellent summary and analysis. From the experience in the past 2 years, I could not agree more!

  2. B+t:

    Theres no such thing, by definition, as procurement outsourcing.

    Procurement is what organisations do:

    1. Buy stuff
    2. Do something to the stuff
    3a. Sell the stuff
    3b. Use the stuff

    What “outsourcing” really is is “HR admin outsourcing” or “radical vendor aggregation”

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