Procurement Outsourcing – hype or reality?

I haven't posted up to now on Procurement Outsourcing which seems surprising. But two pieces caught my eye recently; firstly Supply Management reported that procurement people did not fear losing their jobs to outsourcing, coming on the back of a report from the Everest Research Institute which predicts a growth of 25% in procurement outsourcing through 2010.  And an announcement from Siemens that they are moving into this space in a big way.

I am deeply cynical about both of these announcements I'm afraid. I am certainly not against outsourcing, but every year since I was a fresh young buyer was (according to the experts)
going to be 'the year procurement outsourcing takes off'.  And it hasn't.  I'll declare an interest; based on a friendship and knowing the company (and they're damn good at what they do) I bought a few shares in Xchanging when they floated 3 years ago. Xchanging are a pure-play outsourcing firm, with some real success in the procurement space. But the shares are still 15% lower than at flotation which says something about the growth or otherwise of the procurement outsourcing market. So surveys tend to talk up the prospects because it is in the interest of firms involved to do that.

In terms of the Siemens proposition, I've sat as a client side adviser a few times when firms have been selecting procurement outsource providers.  A key issue for Siemens or other providers who are offering the service off the back of their own internal procurement is this.  If the provider spends billions of dollars or Euros internally, and I give you, say 50 million of my spend as an outsourced client, how can you assure me that I will get priority treatment when I need it - won't your focus be on your billions of internal spend when there is an issue and the proverbial hits the fan?  That was the killer question to one very large provider (not Siemens I should say) that ruled them out of a large outsource I worked on a couple of years ago.

Anyway, despite my doubts about whether this is about to take off, it is a very interesting topic, so we'll look in future posts at what areas of procurement might be suitable for outsourcing, the drivers, and some other things to look out for if you are going down that route.  And here is a an brilliant piece from Spend Matters on the topic and an excellent specialist outsourcing blog resource (the wonderfully named 'Horses for Sources') if you're interested in more.

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Voices (4)

  1. Manoj Sahu:

    Adding comments & value to Peter, due to the overall global economic situation most companies are searching for ways to increase their bottom line performance by not only increasing revenues but also by decreasing the cost of doing business.

    Again due to the same economic conditions, company officials are finding that putting more pressure on their procurement departments’ performance might be easier than increasing revenues. They understand that a $1.00 saved goes right to the bottom line. But if you increase your price by $1.00, not only is that usually an unpopular move within your industry, after expenses you might only realize $ .28 to $ .33 of that dollar.

    So now your procurement department has become a focal point and strategically more important, but along with that comes higher YOY performance expectations.

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