Outsource Services In A Changing Economy

Procurement outsourcing was a hot topic five years ago. Companies would outsource category management and sourcing 'en masse'. It was almost like selling procurement inboxes.

Service providers are more likely to get excellent initial results. They could try a new approach to spending that had never been tried in a formal procurement process. Perhaps they had come across an organization that didn't use market intelligence before, or that ran RFPs rather than building category strategies. It was evident that having better insights and more tricks made a huge difference.

These deals were often savings-based. Even though the contracts were long, they failed to show ROI once the savings targets had been met. The company would reach the middle of or at the end of the contract term and they would start to be renegotiated. Usually, they would focus on different categories or a smaller, more agile delivery method.

In reality, I have extensive experience in the world of procurement outsourcing. In 2007-2008, I was the leader of a captive service organization in India. In the beginning stages of this model, I was involved with outsourcing category management and sourcing. After Accenture bought Procurian, I was able to deliver procurement services. Art of Procurement now offers a range of procurement services called Experts on Demand.

Those were broad outsourcing deals. Outsourced solutions today typically target a specific category of spend, a specific deal, or a single aspect of the category management/sourcing process. This is a new way for procurement to bring strategic spending under control.

Procurement services are a good option in an economy such as the current one. Organizations in trouble may need to consider laying off employees and decreasing headcount. However, a budget might still be available for professional services. The professional services firms are there to help fill in the gaps. They can do the work needed to reduce employee costs or move to variable-cost-based organizational designs. Based on current circumstances, I believe procurement services firms will be more important for procurement organizations in the coming years.

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What are the best practices when using procurement service companies? There are three options to consider in my opinion:

1.They can be used as a SWAT team for support to a company's expense management program. This is useful when you are looking at programmatic cost reduction and expense management. While you need several experts to do this, it is not always a sustainable model. Therefore, a third party is better than dedicated employees. Your external partner can also help you to build your internal capabilities for when the bigger engagement is over.

2.A category expert can be brought in to oversee the whole procurement process, from start to finish. Their engagement ends once the deal is done or all elements of the category strategy have been completed. These skills and knowledge are no longer required.

3.Support can also be provided by subject matter experts on a more surgical level. They can help a generalist procurement resource in the company learn about the supply chain. They can offer input on sourcing strategies and negotiating approaches as well as contracting strategies.

There is no single solution. Art of Procurement was actually my first venture. I developed an assessment method to help procurement teams decide if a partner in procurement would be right for them. It is not for everyone.

Despite this, procurement services will continue to play a significant role in the future, particularly for small- to medium-sized companies. These teams will likely shift from being subject matter experts in the category to become more relational and account management-focused. The team should have someone who is focused on stakeholder relations and can bring in experts when necessary. This model is becoming more popular because it combines the best of both strategic and in-house relationship management with category expertise.