Procurement Outsourcing's Time Has Arrived

As we look back on the past decade of procurement outsourcing, it's felt more like Waiting for Godot than waiting for savings. Seriously, despite all the hype, investment and potential savings at least some early adopters of outsourcing services have generated, we can all agree that procurement outsourcing has failed to cross the chasm.

This is a subject I've blogged about periodically on Spend Matters over the years, and one that I still can't get my arms around. In fact, when I think about it, it makes me almost angry that so many companies with such inefficient transactional purchasing operations -- let's ignore the strategic bit for a minute -- still continue to keep the execution aspect of procurement operations in-house with onshore employees (or at least employees in high cost states). At the least -- especially if outsourcing is not the right answer -- companies should move at least 80% of their transactional group of buyers to India or another lower cost locale (heck, even Indianapolis might generate enough savings for some).

I don't think I'm alone in my thinking. I'm sensing that the benchmarking data from the Hacketts of the world is finally starting to win over many executives to at least consider outsourcing aspects of procurement which are non-core. But I think there are other reasons that the time is right for procurement outsourcing to really begin to take off. I know what you're thinking: he's already said this stuff, and I've heard it from dozens of other pundits already (not to mention the Everests and Deloittes of the world who want to sell me outsourcing selection and negotiation services). This time, however, things are different for three reasons.

First, it's clear that global sourcing is here to stay. But global sourcing has risen in importance not just because companies are looking to save money, but also because many are increasingly going global in their customer ambitions. Whether it's reaching emerging markets in China, India, Central Europe or South America, more and more organizations are becoming global in their thinking. Consider Caterpillar, my favorite global industrial gauge of manufacturing activity because their sales are so closely tied to mining and construction. Cat's only been able to weather the current US economic tides because they've been shielded thanks to the fact that much of their profit and revenue is now global -- not domestic.

But in their sourcing efforts, they've also had to look for local suppliers in regions where they might not be expert in. The net of this is that local sourcing requires on the ground capabilities which few companies are really prepared to make the right set of investments in. So why not outsource local procurement to a local provider? In India, this has particular appeal.

Second, many companies I speak with are having trouble making the talent transformation successful across their operations. Sure, they're able to hire a few of the MBA or sourcing consultant types and bring them in-house, but the top notch sourcing and systems talent is often elusive, at least when an organization takes into account the need to address not just a handful, but all of their categories. What better a way to supplement internal talent development efforts by outsourcing those areas which are particularly challenging to build expertise internally in?

Third, since technology can play such a key role in driving savings, efficiency and risk reduction, working with those who will guarantee its success as part of an outsourcing deal can make a lot of sense. When things do not go as expected from a deployment perspective, it can be hard to know who to point fingers at. Whose fault is it? IT? An SI? Your ERP provider? You? When working with a BPO provider, there's a single point of accountability. In other words, no excuses.

For example, when it comes to rolling out indirect transactional buying capability across an organization to all frontline users, who better to do it than a single point of contact to blame and remedy issues if things do not go as anticipated? Considering that some 80% of eProcurement implementations fail to live up to expectations based on limited deployments to frontline users, too few suppliers enabled, etc. Because of this, going with a BPO provider for indirect catalog management and buying seems almost like an umbrella insurance policy to me. Just make sure you have a tight SLA!

What do you think? I've been wrong about procurement outsourcing adoption before. But this time, things just feel right for outsourcers to begin to take the day.

Jason Busch

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