Redefining Procurement Models – Outsourcing

The session on redefining procurement models at ProcureCon Indirect, with Anton Shibanov of MTS and Alpar Kamber of WNS-Denali, looked at the reasons for outsourcing and then at next-generation procurement models. The first, around whether procurement outsourcing can make you more efficient, began with the more controversial question, ‘do you believe in outsourcing?’

The answer to this from Anton was “you can outsource the work, but not the knowledge.”

He talked about outsourcing in the light of collaboration – seeing it more as a joint working partnership rather than passing the work on for someone else to manage. Whether you insource or outsource, it amounts to shared delivery. And Alpa suggested that maturity comes into play in outsourcing decisions, especially in terms of category management. You need the relationships, strategies and understanding in place to support that partnership, because in indirect procurement there are no shortcuts. Outsourcing, even from the beginning, doesn’t get you to greater maturity, but outsourcing can drive process maturity if you have agreed standardisation between the parties. Processes that keep changing means the partnership won’t work – so it’s good governance to lock them down, and keep track.

He also suggested that sometimes outsourcing decisions hinge on what exactly it is that the corporation is looking for from Procurement, but that often Procurement doesn’t have access to those decisions. So to effectively react to the needs of the business, we need to pull the decision makers together and understand what it is they are expecting . When this was carried out in practice, he recalls from one scenario, the word ‘savings’ wasn’t even on their list of expectations. They were more interested in the ability to find the next supplier quickly, knowing how long it would take to get things done, how long they would have to wait for support, and other more tangible requirements.

The conversation then turned to the reasons why companies decide to partner, and mostly it comes down to speed and efficiency - being able to execute quickly both internally and externally. Something to consider in your outsourcing decisions, is whether it can be used to leverage or facilitate other business opportunities. So for example, you might bring in third parties to get access to their successes, like in terms of getting innovation from suppliers. If you have a partner, you have access to their knowledge as well as your own. And knowledge transfer is a two-way success story: ultimately, if it helps you, then their sales will increase.

Of course there are risks too. The third party needs to keep an eye on the relationship – it can’t all be one way. In these many-to-many relationships, it’s important to agree on expectations right from the start – you can’t have two sets of objectives! And both parties need to be measured on the same goals. This is also dependent on both parties bringing the right people, with the right skills and the right mindset to the table. Both need to think of this as a single team, but with different roles.

So that begs the question: is how you approach supplier relationships the same as for outsourcing partners? The panel felt that in reality, we do treat suppliers differently, dependent on the criticality of their importance to the company. The more important they are to you, the more consideration is given to integrating and considering them as part of your team.

Then there is the question of the role of technology in outsourcing or supplier and many-to-many relationships. To work as a team, you need a collaborative platform. Simply using MS Excel or email won’t work effectively – a single, core platform, for all interactions, means that you can track everything, the whole project lifecycle, and it is imperative that everyone use it.

And that, led nicely onto the next discussion in the session – Next-Generation Operating Models – which will follow shortly.

First Voice

  1. Gemma Howard-Sandy:

    Great piece.

    Procurement outsourcing is of great value to businesses and is absolutely a partnership.

    Being able to execute quickly both internally and externally is certainly a key feature but one that has many factors; looking forward to the next part with this in mind.

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