Sunoco Signs with IBM for BPO: Proof That Procurement Outsourcing Can Serve All Maturity Levels

Last Monday, IBM announced it had signed Sunoco to a multi-year procurement BPO deal (for Spend Matters comparative analysis of IBM's procurement outsourcing capabilities, please click here and here to read more). What is most interesting to me about this deal, however, is not that IBM won it -- they are a strong player in the procurement BPO market, no doubt -- but rather the fact that Sunoco, which does not rank among the most sophisticated of procurement operations relative to Exxon Mobile and other leaders by our analysis, has made the BPO plunge in an attempt to leapfrog its current procurement position. Moreover, it also shows that companies are willing to tackle this buy-side leapfrogging effort as part of a multi-tower outsourcing approach (the IBM relationship also includes the following areas: "Application Enhancement, Application Maintenance and Finance and Accounting").

I suspect that based on the magnitude of the deal, that it was driven at the corporate management and executive level inside Sunoco (even though in most procurement BPO deals I've observed, procurement leadership has some role, even if they don't have an equal voice, in the process). Most likely, given IBM's general BPO approaches, I suspect the effort will include a combination of process, technology (i.e., system) and labor-cost savings components. Given that IBM has partnered with Hubwoo in the past for SRM hosting and delivery -- and that Sunoco, like nearly all oil and gas companies, is an SAP shop -- perhaps they'll play a role in the BPO and associated transactional automation and supplier enablement effort as well.

Sunoco, by our analysis, falls solidly in the middle of the oil and gas pack as what we'd term an "early majority" company in terms of overall procurement and supply chain sophistication and adoption. For companies at this level of maturity, there is often significant opportunity for shareholder returns when BPO initiatives focus first on targeting sub-optimal processes -- not to mention sourcing-based savings -- rather than on labor efficiencies. In addition, for these types of organizations, there are often significant potential savings and working capital improvement opportunities through technology and A/P automation.

Jason Busch

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