Holding Managed Services Providers (MSPs) Accountable to a BPO-Based Standard (Part 3)

Picking up where we left off in Part 2 of this series, we strongly believe that for services categories, it is criminal to apply a common project management office (PMO) mindset to driving internal efficiencies and compliance in procurement, when the much bigger opportunity is to apply deep category insight and capabilities to change the basis of procurement’s role in engaging the business and driving better overall outcomes and value.

This is why, we believe, procurement BPO providers are approaching the services market from a better competitive position than MSPs. In the last post in this series, we considered this point using the example of marketing spend, explaining why particular expertise is required. But the same can be said of legal spend (or any of the other many dozen or so services procurement categories that BPOs and MSPs can take on).

Consider how, during the initial years of an outsourcing initiative involving legal spend, pursuing e-billing programs that enable rate management and better invoice tracking is most likely to deliver optimal near-term results. Yet in most cases, in the out-years of a multiple-year legal spend management program, it makes sense to move to such areas as law firm selection, alternative fee arrangements, resource optimization and document discovery as the next projects to tackle.

This multiyear approach, including the selection of the right set of experts, tools and outsourced solutions at the appropriate phase of a program, holds the key for third-party managed services procurement returns. When evaluating third parties to take over the management of this spend area and others like it, executives should challenge potential partners to outline their specific approach and track record, especially when engaging with MSPs that are seeking to expand past a more focused, “vanilla” contingent workforce management program.

Beyond highly specific category expertise, knowledge and tools, the final advantage we believe that BPOs bring to services procurement over MSPs is a stronger appreciation for the broader solution platform beyond just vendor management system (VMS) enablement for contingent and SOW spending. In our experience, there is a significant continuum of knowledge and capabilities of procurement BPOs in this area. The larger BPO firms that focus across multiple areas beyond just procurement tend to, as a rule, have more defined platform as a service (PaaS) capability in which they’ve both licensed technology and built their own to deliver an integrated experience and outsourced capability.

One area where a large market need has existed for this in the past was e-procurement enablement and integration. Procurement BPOs invested significant sums in building out and configuring partner solutions solutions that clients could adapt to their own environments more easily than starting from deployment scratch each time.

Yet e-procurement is just one area of focus for procurement BPOs, even within P2P alone without considering the broader ability to map and leverage sourcing (including optimization tools), contract management, supplier management and other procurement systems alongside and often integrated into a VMS environment. Take the case of e-invoicing, for example. Many BPOs have built practices around partnering with OB10 and other specialists for e-invoicing enablement to drive supplier adoption (the other critical side of the coin that those without significant experience in the area might not realize).

We are increasingly seeing BPOs leverage sourcing optimization capabilities that enable the BPO and the client organization to solicit more creative responses from suppliers in a negotiation, rather than forcing a rigid “apples to apples” lot structure. Such tools also enable the ability to create and run award scenarios after supplier bids are collected to create optimal decisions based on both price and non-price factors (e.g., what is the lowest total award price for a decision which allocates no more than 50% of spend to a single supplier, ensures that 25% of sub-tier spend goes to diversity suppliers and where the vendor has previously had a track record of performance in our organization exceeding average KPIs).

As we’ve previously noted on the subject, Spend Matters recommends considering the power of sourcing optimization tools to drive to specific outcomes rather than forcing suppliers to bid a rigid specification. By encouraging supplier-driven creativity and fluid responses that can then be compared against each other with internal constraints applied sourcing optimization can open up a world of better total cost outcomes — and better stakeholder engagement throughout the process — rather than simple unit cost-based decisions for many larger SOW services procurement decisions.

We’ve seen sourcing optimization applied to contingent spend as well. In one case study, we previously documented one project involving nearly 200 stakeholders, 5,000 workers, 600 job descriptions across 36 locations, 10 skill categories and 104 suppliers. Using the sourcing platform, the organization was able to gather information and conduct evaluations at multiple local, regional and global levels by individual sub-category based on specific job descriptions, locations and skill categories. Specifically, the software allowed the company to collect and examine data at a highly granular level, including individual pay rates, social costs and management fees across all geographies, sites and job descriptions.

Beyond sourcing and P2P, BPOs are increasingly beginning to bring additional solutions expertise to the procurement outsourcing stage, including, in more advanced cases, supplier management, to tackle a range of opportunities from driving additional diversity spending to reducing supply risk to developing suppliers to improve quality and operational compliance.

In the final posts in this series, we will provide a set of takeaway recommendations for organizations considering engaging third-party outsourcing providers (procurement BPOs and MSPs) in the area of services procurement.