Outsourcing’s role in procurement’s journey towards the heart of business

Continuing our series on procurement outsourcing and shared services, we're pleased to feature a guest post from Chris Gayner (Head of Marketing) & Tom Lawrence (Strategy and Communications Director), for buyingTeam, one of Europe's leading procurement outsourcing firms. The business has an impressive 10-year plus track record and a blue chip client base that is extending to be increasingly international, including in North America as well as Europe.   Take it away, Chris and Tom...

When we talk about bringing in third party providers or outsourcers, we have been trained to think in terms of the traditional BPO model, where you lift low level, labour intensive, administrative tasks and shift whatever cannot be automated to an offshore location where labour is more cost effective – i.e. cheaper.  This model has worked particularly well for Finance and Accounting, HR and IT due to the repetitive, low value-add tasks that could be centralised and engineered in a consistent way allowing the function to focus on its core activity with the provider absorbing the white noise.

A recent FT article on the topic of outsourcing quoted Rick Morris, CIO of Dollar Thrifty Automotive Group (DTG) in saying “From a cost perspective, we’re offloading a great deal of the complexity involved in managing largely commoditised services… so that internal staff can focus on business needs…”.

Procurement on the other hand, although having some elements which can leverage the traditional outsourcing approach, relies on a deep understanding of internal stakeholders and their changing demands and a thorough knowledge of the supply market. As such, the third party provider cannot simply apply a template or generic operational model and expect the same results the in-house team (if it were resourced to an optimal level) could achieve.

Third party providers can also bring expertise and experience from within and across industries and businesses. They can also flex this expertise when demand is high and remove during the troughs – ensuring the procurement team is sufficiently resourced in line with the business needs.

But whoever “owns” them, procurement staff need to be deep category experts, change management experts, and, for a large part, on-site dealing with people. Ultimately any third party provider needs to challenge old thinking and behaviours, taking a more holistic view of the business and bringing ideas to the customer’s table to help them improve their bottom line (which simply does not happen in the traditional BPO environment where the models have been built around operational efficiency and automation).

Mr Morris did go on to say;

I need to be able to look to my provider – in this case, a much larger and deeper-skilled organisation than our own – to help bring ideas to the table, ones that will add real business value

In our experience, this ‘customer intimate’ approach (truly understanding the drivers, needs and expectations of the entire business) is a critical piece of the puzzle which is missing in many in-house procurement operations (and to a degree many traditional BPO providers). The ability to get under your customer’s skin and truly understand what makes them tick takes a lot of human, cash and time resources to get right, but can be the difference between a perception of low value and one of a strategic business partner. Partnering with a third party provider who applies this approach can be the key to unlocking the door that stands between procurement and the board room.

Organisations are able to realise significant benefit by turning Procurement’s attention from solely focusing outwards on the supply base to also focusing inwards to the organisations - challenging stakeholders, functional managers, business rules, ways of working, policies and procedures, etc.  It’s by changing the behaviours of people within the organisation itself that can release untapped rewards.  And we’re talking about tens of millions of pounds, Euros or dollars.

This is perhaps particularly true for indirect procurement (also called GNFR or non-core procurement). Benefits remain untapped in most organisations because businesses don’t have the necessary skills internally, and at the C-suite level, indirect procurement’s importance is often perceived as low.  However, our own experience, for example recently with a FTSE 100 organisation, has shown that better managed indirects can deliver significant profit improvements - with £30m of in-year savings achieved in the first six months of 2011 alone, in addition to greatly reduced levels of risk, and a cultural shift in attitudes towards third party expenditure.  This is exactly why the C-suite is taking a greater interest in what procurement can achieve.

The fact is, for most organisations it is simply too expensive to have in-house the sheer volume of people needed to cover the breadth of indirect categories, to the sufficient levels of depth of current knowledge, plus the leadership, change management, and communication skills, and of course the appropriate procurement technologies.

Businesses in this situation therefore have two choices.  Either carry on as they are, or seek an alternative way of working via an external provider.

Voices (3)

  1. Jeff Fishel:

    Tom and Chris’ comments are so true. However I fell they do not go far enough. I accept the value and the need to question and analyse the In-direct spend to identify savings as a result of economies of scale, as well as the relationship one needs to build with suppliers. However there are two factors which should also be taken into consideration. These are:
    1. The choice of partner. All too often the supplier we may choose hides their skills under a veil of ‘secrecy’ and if it is let out there is usually a significant cost to it.

    2. The other consideration is to the company’s customer. We must always remember that we are putting in place will enable the company to supply products/services to the end user faster, more efficiently, and at a competitive price.

    All too often Procurement are regarded as ‘The Show Stopper’ and this is not the case. Procurement must definitely be at the right hand of the C-Suite as Chris and Tom say.

    Great piece, well done chaps.

    Jeff Fishel

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