Spend Matters Best of IBM — Procurement & Outsourcing

Jason just concluded a 4 part analysis based on IBM's announcement in late July that they were "refining" their overall procurement outsourcing strategy. Here are the links and a few highlights from the series:

Digging Into IBM's Procurement Outsourcing Strategy and Offering (Part 1)

  • Much of IBM's legacy in procurement owes to Gene Richter, whose centralized procurement leadership at IBM led to a much-needed PR turnaround for procurement as increasing numbers of companies modeled their own programs on the IBM model.
  • Their new capabilities include "providing spend-category experts who can analyze a business' spend, develop new sourcing strategies and negotiate improved contracts with suppliers."
  • In such categories as travel, office supplies, legal and telecommunication spend, there's no doubt that IBM's own internal expertise and resources -- which they claim play a key part in the actual execution and management of their client's sourcing strategies and programs -- can bring much to a range of companies across industries.
  • In the case of strategic sourcing outsourcing, IBM signs up for a long-term managed service where the deals are typically 5 to 7 years.

Digging Into IBM's Procurement Outsourcing Strategy and Offering (Part 2)

  • Even though IBM is involved in spend aggregation and both its total internal spend and client spend volumes represent significant sums, we all know that there are points of diminishing return when it comes to these sorts of models in at least some categories.
  • IBM may position itself as flexible, but you "pay them for it"; they're high up on the "if you pay me to do something, I'll do it" scale rather than pursuing anything outside of an initial scope.
  • IBM's Bill Schaefer, who runs the procurement outsourcing business unit for IBM, suggested "We are willing to come in on a focused basis. The perception in the market was that IBM was end-to-end only and we are hoping to change that".
  • While IBM is attempting to break out and productize their procurement outsourcing offerings to make them more approachable, the actual behavior of reps in the field will most likely remain the same as before, focusing on the mega-deal approach ...

Digging Into IBM's Procurement Outsourcing Strategy and Offering (Part 3)

  • Most of IBM's procurement outsourcing deals start as targeted discussions rather than as part of broader outsourcing.
  • IBM's procurement outsourcing group works with over 30 clients, over 5 of which it added in 2009 (including a "couple in retail").
  • Companies are keeping core direct materials sourcing in-house and are looking to partners to help provide competencies and savings around indirect spend.
  • In one example, IBM was able to get in the door because of their specific experience taking on the entire sourcing responsibility for IT -- managing the entire lifecycle of the sourcing processes including, but not limited to, upfront negotiation and contracting.

Digging Into IBM's Procurement Outsourcing Strategy and Offering (Part 4)

  • While IBM claims to be the largest provider in the space, there are many ways of accounting for size (e.g., revenue, customers, breadth, etc.), so I think this claim can -- and should -- be interpreted as only a single data point.
  • Decide if you really want outsourcing (i.e., someone else taking full ownership of the opportunity as well as significant upside) or if a consulting firm -- even IBM -- working on a time and materials basis (or cheaper contingency basis) is a better fit for indirect categories.
  • IBM's latest move is further proof that clients want to quite often start small and work their way into a broader procurement outsourcing relationship.
  • Any outsourcing partner in the procurement space should have intimate knowledge of all of the core transactional procurement and payment systems they're likely to encounter (e.g., Ariba, SAP, Oracle, PeopleSoft).

William Busch

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