Procurement as a Service: The Time is at Hand

Spend Matters welcomes this guest post from Philip Ideson, founder of ProcureChange and host of the Art of Procurement podcast.

In the course of my work helping companies integrate the use of third-party services into their procurement delivery model, I often come across procurement professionals who fear the impact that the increasing adoption of outsourcing will have on their careers. And then there are those who believe that their company will never adopt procurement outsourcing because “procurement is just too important to outsource.”

The reality is that executives are continuing to increase their reliance on procurement outsourcing providers. As companies continue to seek more flexible organization structures it is not unreasonable to expect a significant and accelerated change in the way companies access procurement expertise. The increasing difficulty in hiring business-orientated procurement talent compounds the need to seek alternatives to the traditional insource model.

Despite this popularity, today’s procurement outsourcing model — characterized by long-term, multiprocess and largely fixed-cost engagements — will soon become redundant. It will be a repeat of the way in which today’s procurement outsourcing specialists diminished the need of CPOs to parachute in teams of high-priced consultants to provide sourcing and category management services. “As a service” is coming to procurement.

Regular Spend Matters readers will be aware of the impact that “as a service” is having on other business functions, and on contingent labor. Procurement is now in the firing line. The as-a-service delivery model will give companies access to subject matter expertise and technology that is delivered on-demand. Organizations will be able to pay for only the services and technology they need and, importantly, use. Activities will be unbundled and will be available on a plug-and-play basis.

This shift will present significant opportunities — and challenges — to the c-suite, procurement service providers and practitioners. As I talk to clients and industry thought leaders, consensus is building on the possible impact of the as-a-service delivery model on procurement.

First, it has the potential to bring strategic procurement to the masses. While procurement as a profession continues to increase its penetration, it is only the largest of firms that can afford to invest in the full suite of capabilities that procurement can offer. The c-suite at smaller companies will now have access to targeted expertise and technology at a price point that justifies the investment.

For today’s procurement service providers, the collective revenue opportunity will be huge. However, those that have a business model that relies on long-term, fixed-costs engagements will need to quickly adapt or be left behind. The brave will cannibalize their existing models in the short term to emerge as long-term market leaders. The rest will “make hay while the sun shines” — but they face the threat of becoming irrelevant over time. Expect to see a new breed of niche procurement services firms emerge that have the structure to deliver targeted solutions, on-demand and at a price point that becomes a competitive advantage.

As for practitioners, I believe that it is all upside opportunity for those who embrace the shift. The demand for procurement professionals will grow as our services become more accessible. However, jack-of-all-trade generalists — coveted over previous decades — now become the most exposed, as companies access subject matter experts on a part-time basis.

The riches will be in the niches. Teams will be staffed by a mix of category specialists that support spend areas core to a company’s value proposition and a support team of program managers and relationship specialists. The internal focus will be on understanding and influencing business strategy, translating these strategies into procurement action plans and then managing a diverse and distributed collection of third parties and freelancers in the delivery of those plans.

The biggest financial opportunity will be for category-specific subject matter experts. The supply of this kind of expertise is already constrained and is fueling a so-called war for talent. In the as-a-service model, experts will be able to use new technology, like work intermediation platforms, including FMS, freelancer marketplaces and others. These category experts will be able to deliver services on a fractional basis, which will help facilitate a shift in compensation model from time and material to a value-based approach. I anticipate this will have a notch up effect for salaries of category experts whether they are an internal practitioner, work for a third party service provider or act as an independent worker.

The saying goes that change is the only constant. While I profess no timetable on how fast change will occur, I strongly encourage procurement leaders, service providers and practitioners to position themselves today to take advantage of the transformative potential of procurement as a service.

Voices (3)

  1. Don Jean:

    Thanks for this visionary article about procurement’s “business process delivery” model and the need for technology to get developed for it and aligned with it. For SMB’s, corporations, social organizations, non-profits, public entities, private equity and the everyday consumer (for the first time ever buying big ticket items and services), a facilitative, cloud-based, P2P software platform is now available and deployable in 60 minutes or less. So any ‘subject matter expert’ not tethered to a company, corporation or organization can remotely execute outsourced, “cradle to grave” procurement within an hour. Spending money wisely, for ourselves or as a third party for another person or entity, is no longer limited by complicated to use and expensive technology.

  2. Mike Davies:

    A very interesting article. 4prime has developed software to allow clients to see past the “smoke and mirrors” used by energy suppliers and brokers to hide undeclared profit margins and maximise ROI on investments aimed at reducing energy costs. We are in the process of offering these services as online tools and currently offer the analysis on a consultancy basis. Currently this service only applies to the UK electricity market.

    The business model is as-a-service backed up with training if required. In the UK market there are over 30 different charges applied to the delivery of electricity to a meter. 4prime’s service deals with the complexities of calculating a supplier’s base cost to leave the client to negotiate the supplier’s margin.

    By bringing full transparency to tendering for electricity supplies cost savings of 5% to 10% are being achieved. A value for money review was carried out on an existing Combined Heat and Power plant (co-gen) and revealed a potential annual saving of £2million by switching off the plant and purchasing electricity and gas directly.

    The role of procurement as-a-service is heading towards providing clients with expertise in niche markets to allow the client to concentrate on negotiation of supplier’s margin and terms and conditions.

    At the moment service providers are working on particular niche markets and it would be better for clients to be presented with a single platform that brings together these niche services. Interaction between services would bring further savings for clients.

    Have any such platforms been developed already?

    1. Nagesh Murthy:

      We focus on a niche called Tail Spend Management. These are one-time/infrequent buys or buys made by the Business Unit without Procurement oversight. Typically, it manifests itself after-the-fact: opening POs so the invoice can be paid, AP automation for non-PO invoices, supplier rationalization exercises every x years, etc. Our solution offers this as a service where they can divert the Tail Spend through our system so that a digital record of what was bought is available for analysis, and also relieves the company of managing the Tail suppliers (sometimes 80% of the supplier base for the last 20% of the spend…good old Pareto)

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