Consider outsourcing

It's time to think differently about procurement

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According to our recent survey, 65% of chief procurement officers (CPOs) cite finding more savings as their top pressure, 48% cite talent constraints as their top challenge, and 30% feel that the organization views them as reactive.

Thirty-four percent of procurement executives indicate that challenges in aligning processes and systems are a barrier to success. This is hardly surprising given that only 8% of respondents say that their spend analysis programs are fully automated and within a single system, and only 13% can say that their sourcing processes are fully automated within a single system.

Without standardized systems and processes, procurement organizations struggle with both category management and the ability to effect and implement change through procurement operations.

To become the strategic advisors they want to be and to earn the respect of their stakeholders, CPOs need to think differently.

Rather than taking a step-by-step approach — adopt new technology, then fix the processes, then determine resource requirements — CPOs need to take a more holistic approach.

For many CPOs, now is the time to consider strategically outsourcing some elements of the procurement function.

1. What’s the issue?

In a volatile economic environment, organizations continue to cut costs across the organization. Procurement is no exception.

CPOs are under constant pressure to deliver year-over-year savings. But there is a limit to the savings they can achieve without expanding their reach or engaging other internal stakeholders.

As CPOs across industry sectors rethink their approach to procurement, it’s time to consider business process outsourcing (BPO). Done correctly, BPO can drive two to three times more savings to the organization’s bottom line, and it can free up internal resources to focus on more strategic opportunities and more effectively meet the needs of operations.

2. Why now?

Although outsourcing has been common for years among many back-office functions (such as IT), only in the last two or three years have service provider offerings reached a level of maturity that makes procurement outsourcing more attractive.

With limited resources, constant pressure to deliver savings, and reactive positioning that restricts improvements that would drive value and improve procurement’s standing within the organization, there is no better time for CPOs to consider BPO.

3. How does this affect you?

CPOs are getting everything they can from the resources they have, but they need more. Additionally, as the pace of business continues to accelerate and their needs evolve, CPOs find that they don’t have the right competencies to manage procurement activities in-house.

BPO enables CPOs to get the right mix of resource skills, flexibility and scalability to proactively address organizational needs and deliver the savings that the organization demands. Moreover, in-house resources that are displaced as a result of the outsourcing are often redeployed to roles that offer more strategic value to the organization.

4. What’s the fix?

It is important to note BPO may not be right for every organization. For those that do consider outsourcing, there are five steps organizations can take to make it a success:

  1. Know the culture.
    Before considering BPO, CPOs need to consider their organization’s appetite for outsourcing.
  2. Define the right scope.
    CPOs need to have a detailed understanding of their current operating model, a vision for where they want to get to and an idea of which route they want to take.
  3. Build a business case.
    A business case should outline the costs and benefits, a plan for transition, and metrics for measuring performance once the outsourcing handoff is complete.
  4. Select the right service provider.
    CPOs need to ensure that service providers offer the right qualifications and service levels and the right cultural fit for the organization.
  5. Fix and shift.
    To ensure a smooth transition and minimize issues once outsourcing is complete, procurement should consider the current state of its organization, as well as the technologies and processes that should be fixed prior to moving them to a third party.

5. What’s the bottom line?

As the velocity of business accelerates, the pressure organizations place on their procurement functions to produce year-over-year savings will continue to rise.

Insufficient resources, manual processes and disconnected systems leave many CPOs in a reactive state with few options for improvement. To drive the value the organization demands and become the strategic players CPOs want to be, now is the time to consider BPO.