ICG Commerce, procurement outsourcing Kings of Prussia

On our recent trip to the US, we took the opportunity to call in on ICG Commerce and meet Kristen Knouft, their Marketing VP, over a sandwich (and how do the Americans get quite so much meat into a single sandwich)?

My first surprise was in getting a sense of how big the organisation is – over 700 people now. And while by no means all their staff are based near Philadelphia, in King Of Prussia, (also home to the biggest shopping mall in North America and the most complicated road junction I've ever navigated…). It's an impressive facility, and the number of people actually working there reflects the way they structure their offering to clients. More about that later.

They’re clearly an organisation that has been around long enough now to understand pretty well what works and what doesn't in procurement outsourcing. Interestingly, there was a high degree of commonality between their comments and those made by buyingTeam when we last spoke. For instance, both organisations place much store in “customer intimacy”, and are not too keen on the “outsourcing” word, preferring more collaborative sounding epithets these days.

ICG started out more than 10 years ago with a focus on promoting aggregation and using technology to drive value for clients. They had their own e-marketplace, and were often rewarded by transaction fees and share of savings mechanisms.

But over the years, they have shifted to a strategy that is based much more on having deep expertise particularly around indirect spend categories – aggregation and technology are still important, but are not so much at the heart of their proposition.  Some clients use them for all indirects; others pick and choose particular categories; logistics or IT perhaps. “We aggregate information, market intelligence and capability to benefit our clients” as Knouft put it.  “Often these are spend areas where clients can’t - or don't want to afford the time, money or effort to develop the expertise themselves”.

ICG structure their people into a number of teams based on different functional areas. Some focus on sourcing exercises; some are deep category experts; and others work on client engagement, compliance and post contract management. That means that some will be on client site pretty much permanently; some when necessary; and some spend most of their time in King of Prussia (the deepest category researchers perhaps).  It’s an interesting model, based as we said earlier on years of pragmatic experience, and one that certainly feels more appropriate than the pure “labour arbitrage” models we used to see from some providers in the ealry days of procurement outsourcing.

The fee model is now generally a straight annual fee, but often with milestones and targets linked to some of the reward.  But (and again, this chimes with others such as buyingTeam), ICG have found that a pure gainshare model can encourage the wrong behaviours – from both parties!

We’ll have more in Part 2 shortly, and look at an example of where that category expertise can really add value to a customer.

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