Balancing internal & external service provision – a recipe for procurement success (part 2)

We launched our new research paper, sponsored by Achilles, on Monday -  “How to balance internal and external service provision – key decisions for procurement professionals”.  You can download it, free on registration, here. As we said then, it contains two sections, and today we’ll focus on the first, where we look at the concept of combining internal and external service provision to drive procurement success.

It’s clear that outsourcing of entire procurement functions or responsibility has not taken off in the way that some expected it to. But we think there is a more ultimately constructive movement going on -

...it is our hypothesis that procurement has actually taken a more subtle route to greater utilisation of third party service providers to support its own activities. Leading procurement practitioners are taking much more advantage of external service provision than a decade ago; but it has not been the full outsource route that has generally been chosen. Rather, they have looked carefully at which elements of the overall procurement process and set of responsibilities make most sense to acquire externally, rather than deliver internally.

That has been supported by a growth in the number and nature of service providers who can provide certain elements of the overall procurement service. It is no longer a case of all or nothing – outsource the whole function or do it yourself. These providers offer many options, although many CPOs have not caught up with this changing landscape. That leads onto the heart of our Paper:

... we’ve come to this view: One of the most important roles for Procurement Leaders (CPOs and similar) today is to source, manage, combine and blend capabilities and resources successfully, from inside and outside the organisation, to achieve their goals.

We then go on to talk about the reasons why external service provision can be useful – gaining leverage of spend volume and/or scarce, expensive expertise are probably top of the list for many who go down this route.  There can be a pure labour arbitrage benefit, (one of the “traditional” drivers of outsourcing perhaps), but just as often now it is to allow organisations to focus on what they perceive as true core business.

Next is the question of how you might prioritise which areas or activities are most promising for external service provision. We suggest that the first step is to “identify work currently undertaken and develop a map of the processes and activities undertaken by the procurement (and related) functions”.

Having identified the potential activities that could be sourced from third parties, the next step is to assess which would show the greatest benefits if that step were taken. That requires analysis of a number of factors (given in more detail in our Paper), but including the current strength of internal capability in that activity, and the capability available in the external market in terms of that service. As we say:

Applying these key questions to the range of potential services can help to determine where the maximum benefit may be available, and help to clarify the nature of those benefits.

Finally in this first section, we look at a couple of examples to see how that analysis might pan out – for our purposes, we look at using external provision for Supplier Information Management or category management of tactical spend categories.

And stay tuned for the next post in this series, when we’ll look at the second section of the Paper.

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