Procurement BPO: Understanding an Offshore Operating Model For Spend Analysis (Part 1)

In a recent Spend Matters and HfS co-authored Compass whitepaper Designing an Optimal Procurement BPO Program: Process Expertise and Realized Improvement (free, registration required), we explore how companies can start out their procurement outsourcing investigations on the right foot versus getting sucked into a model -- either internally-driven or provider-foisted -- which is bound to disappoint. Hint: if you come up short of expectations, don't go blaming an offshore BPO -- it's as much your fault as anyone else's. As part of our analysis, Phil Fersht and I talk about what an offshore operating model for spend analysis and reporting looks like. In this two-part post, I'll share the highlights of this model based on Phil's research and responsibility breakdown between the client and provider. In the second post, I'll also investigate some techniques more advanced companies are deploying in BPO relationships -- and how they're doing it.

In the paper, we suggest that the client responsibility for offshore spend analysis and reporting should include: identifying data sources, data types and format, providing access to spend data owners and suppliers, nailing down desired outcomes in terms of data completeness, accuracy, timeliness, defining roles and access to spend reports and subsequent initial category strategy development, approving identified and prioritized savings opportunities and finally, executing savings opportunities. There are of course exceptions to the rule, but if a procurement organization opts to hand over any of these responsibilities to their BPO, they should be especially careful in managing to the outcome they want to achieve.

The BPO service provider responsibility for spend analysis looks very similar to the types of integrated software/services that an Ariba, BravoSolution, Emptoris, Iasta, Lexington Analytics, Spend Radar or Zycus provides. These include:

• Periodic data extraction, aggregation and classification according to client taxonomy (e.g., UNSPCSC or another variant)
• Cleansing and enrichment (e.g., format errors, duplicate supplier names, parent child relationship, attribute formatting, diversity/risk enrichment, etc.)

However, BPOs often go a step further than organizations and vendors focusing solely on the basic management and analytical enablement of spending data as part of spend analysis to also use the data to identify potential savings opportunities related to sourcing, category management, invoice auditing, etc. Moreover, BPOs typically also handle the integration of data (internal and third-party) into and out of the application where required.

Stay tuned as we look at how BPOs can help drive reporting capabilities for spend analysis and more advanced analytical use cases.

Don't forget to download your free copy of Designing an Optimal Procurement BPO Program: Process Expertise and Realized Improvement.

- Jason Busch