Selecting the Right Outsourcing Provider

Milan Panchmatia, Director at 4C Associates, leading procurement consulting / outsourcing services provider, gives professional advice on procurement outsourcing. 

Deciding to bring on a third-party provider can have multiple benefits. Chief amongst these is access to a cost-effective resource to cutting costs and delivering value. In an environment characterised by economic uncertainty the attraction is clear. However, not all providers offer the same service and it’s essential to select one which can mirror your expectations.

A volatile, but growing market

According to research carried out by Everest Group in 2014, the procurement services outsourcing market grew by 12% in terms of year-on-year growth in 2013 and analysts then expected it to expand further by between 10 – 12% in 2014. If we took this as evidence of an ongoing trend, these would be impressive figures, however, they would be misleading since they infer that the procurement outsourcing market is growing steadily. This is not the case and the market is very volatile.

The main driver behind procurement outsourcing remains cost and savings, however, a number of new elements are gaining in popularity. Third parties can offer deep category expertise, access to a range of technologies and a combination of consultancy and management services. This broad range of services has led to a rise in the number of third-party procurement contracts, but also an increase in the number of companies switching service providers in a bid to find the best fit.

So how can businesses make sure they are committing to the right procurement outsourcing provider? Well there are a number of ways to build the foundations for a fruitful partnership.

A match made in heaven?

One of the central elements to get right when entering into any contract is the objectives. This is especially important in terms of selecting an outsourcing provider, as it will not only ensure both parties are pulling in the same direction, but help you make the initial choice of which providers should be considered.

Some providers specialise in quick win savings, whereas others go further and are able to recognise opportunities for strategic procurement initiatives. Take into consideration whether you are looking to reduce cost and carry out some spend analysis, or if you are looking to deliver a real step change to the business. Not all consultancies can provide the latter.

In some cases, businesses may need a provider able to scale. If this is relevant to your situation, consider whether providers have been able to operate successfully from new locations. At 4C Associates we take great pride in our ability to provide a pan-European service to some of our clients.

It’s still all about the people

Another element which businesses should take into consideration is the people of the outsourcing provider. When it comes to procurement consultancies it is important to examine the talent they have at their disposal. Good people are difficult to retain, so you should also consider retention levels. A company that keeps hold of its best staff recognises their value and is also able to keep them happy by offering them interesting and innovative projects to work on.

The above is a vital element, particularly if your objective is to increase procurement’s influence within a company. In this case, the provider’s talent pool can play a pivotal role in helping to earn or cement procurement’s seat in the board room. A combination of thought leadership, change management and traditional procurement tactics is often paramount to achieving increased visibility for the function.

Another consideration is a provider’s stability. Does the company have any long-term clients? If so this will indicate a level of satisfaction and stability as well as flexibility. A procurement outsource contract that has lasted for years can be an indication of a provider able to adapt to its client’s needs. This also highlights a level of reliability, which is vital if two parties are to enter into an agreement.

Concluding thoughts

In essence a business’s relationship with a third-party consultancy should be driven by its objectives. Generally speaking, there is no point hiring a provider specialised purely in eProcurement technology if you are looking to increase procurement’s visibility.

Align your objectives with the strengths of providers and use this information to come up with a selection of options. From here you can move on to considering other criteria such as reliability, talent available and track record. The beginning of any business relationship is usually its most important stage and it is vital that you get it right.

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