Procurement Outsourcing: A.T. Kearney’s Unique Take on BPO (Part 2)

In the first post in this series, I shared a number of market observations based on AT Kearney's research into procurement outsourcing trends and the overall evolution of this segment of the BPO market. Today, I'll provide some further color based on AT Kearneys' analysis -- observations that I think are invaluable for companies evaluating whether or not they might be good fits to outsource parts of their procurement function. Let's start by talking about characteristics of the market that are proving challenging for driving further procurement BPO adoption.

Here, AT Kearney suggests that because procurement remains so closely tied to P&Ls inside companies, that "control" remains a large issue that is hindering broader procurement outsourcing programs. Moreover, companies are increasingly dipping their toes in the water -- not necessarily a bad thing, in Spend Matters' view -- and trying to "prove the concept and see" before issuing larger-scale RFPs. But perhaps one of the most important challenges in the market is the fragmentation of the provider/vendor landscape. Indeed, this is an early stage market where so many areas are non-standard today. Here, Kearney suggests that contracting is complicated; efficiency is often lacking relative to in-vendor procurement operations relative to the same rigor as F&A, HRO; scale can prove challenging in the "ability to obtain better prices than the client"; and "category specific knowledge and expertise" is often wanting.

Despite these challenges, there are favorable signs as well, AT Kearney suggests. These include the existing expertise in shared services among vendors as well as companies that may have outsourced other areas or moved to shared services models internally (e.g., AP, AR, etc.). Moreover, a "chronic lack of internal skills" and the ability to successfully manage and get the most from specific categories -- often "indirect" as ATK points point -- are also driving the investigation of BPO options. Aggressive vendors which offer to "put skin in the game" are also helping accelerate interest in the area.

Who is a best fit with procurement BPO? Here, Kearney offers up that procurement BPO is often a "better fit for medium size companies" or those where certain skill sets are lacking. Yet even in these cases, it pays to "start slow" by selectively chasing only a handful of categories and proving the value before increasing scope. But above all, both companies and their providers must be honest about what's possible while enabling the external partner to be a critical agent of change for the procurement function.

Again, for further reading on the subject of procurement BPO, you can download, for free, Spend Matters and HfS' latest joint research on the subject:

Designing an Optimal Procurement BPO Program: Process Expertise and Realized Improvement
Tips for Making the Promised BPO Benefits Real – Alignment, Focus and Integration

Jason Busch

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