Everything You Wanted To Know About Procurement Outsourcing, but Were too Afraid To Ask

Hot Topic

We are pleased to feature this article on this month's Hot Topic from Gerard Chick, chief knowledge officer, Optimum Procurement Group.

Is having a business case for procurement outsourcing which is driven by added value and cost reduction enough? Is it really as simple as that?

Or do you want to know who really needs convincing? How can you provide comfort to your board when you are suggesting something as radical as moving spend out of the business and entrusting it to a third-party service provider?

Making a decision that fundamentally changes the way your business operates is going to be a daunting prospect especially if it’s the first time you have done it. So if you are considering outsourcing for the first time, your fear of the unknown might well act as a deterrent in your taking that first step. However in today's business climate, being bold and embracing change can help ensure that your business is sustainable and remains competitive.

At Optimum Procurement Group we recently discussed with a number of our clients and other contacts from the wider business community to understand their perspectives in this area and develop some 'top tips' regarding procurement outsourcing for the uninitiated. We are grateful to those who shared their experiences with us with such candour and for permitting us to share them with others, in order to ensure that businesses wishing to take this step towards Procurement Outsourcing can make the transition in as painless a way as possible.

Our enquiries revealed that any organisation embarking on such an undertaking should centre on three essential aspects from the outset:

  • Board/senior management sponsorship
  • A clear procurement strategy
  • The deployment of a strong governance programme

Before embarking on your outsourcing journey, it is imperative you evaluate your business needs and come to a firm consensus that outsourcing is the best solution for your business. Moreover by having clear business and financial objectives and an understanding of the results you want to achieve, you can enter the arena with a vision of what good looks like.

With regard to the practical issues you need to address listed below are some of the key learning points we took from our dialogue:

  1. Clarity in your communication is critical, both at this start and throughout the process
  2. Listeningto internal audiences through your decision-making process
  3. Engagementwith affected employees, stakeholders and your service provider when developing your strategy
  4. Collaboratewith other business functions and explain the benefits of outsourcing to stakeholders throughout the process to maintain continued support
  5. Mandatethe actions and authority of those responsible for implementing your strategy
  6. Assignment of specific roles, authority and responsibilities to ensure that the process is well managed

Carrying out the above actions will ensure that you have the right ‘deal’ for your business.

The most critical activity inside the business was unequivocally establishing a skilled, experienced and committed outsourcing team; and that your service provider knows who the first points of contact for any and all aspects of the process are.

During the negotiation process, ensure that you have agreed clear goals and the supporting information that is required to achieve these goals for example budgets, SLAs, KPIs and so forth. This, along with strong project management, will also enable all parties to be realistic about the costs and timings involved.

Above all else governance was seen as the most integral issue in the outsourcing process. It is vital to have a governance team in place as early as is practicably possible. This will help to ensure that the deal remains aligned to the negotiated terms throughout the contract period.

Your governance team must be able to define the governance and working processes at the highest level of competence and ensure compliance on both sides. They must deploy appropriate measures to support governance, and create single points of accountability for both your internal teams and your service provider’s people.

Finally ensure that people and open communication are kept at the heart of the process – from making the business case, through to negotiations, implementation and even perhaps re-negotiation.

Do all of this effectively with all key stakeholders and you will maintain trust and expertly manage your organisational change programme.

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