This paper draws upon recent discussions with dozens of companies that are exploring outsourcing services. Jason Gilroy and colleagues draw upon their years of procurement expertise to provide answers to common questions surrounding the outsourcing of procurement services.
PROCUREMENT OUTSOURCING:
The 10 Things Companies
Really Want to Know
By Jason Gilroy Vice President of Outsourcing ICG Commerce
As featured in:Over the past year, ICG Commerce has seen an unprecedented level of interest inprocurement process outsourcing. Many industry thought-leaders have launched comprehensive studies on the topic, reporting that performance has exceeded earlyadopter's expectations and are projecting 15 to 50% growth over the next threeyears. Trade media and educational organizations that have historically avoided the topic are now approaching it proactively, including The Institute of SupplythManagement who recently included Procurement Outsourcing on their 89 annualmeeting agenda. But perhaps the most direct evidence of a growing trend toward procurement outsourcing from ICG Commerce's vantage point is the 10X increase in the number of inquiries and RFPs we have received for outsourcing services.
While this increased interest in procurement outsourcing is clear and the value proposition can be compelling, many companies still seem to struggle to understandprocurement outsourcing and determine the appropriate path forward for their ownorganization. Drawing upon recent discussions with dozens of companies that areexploring outsourcing services, my colleagues and I have compiled a list of commonquestions, behind the questions and have attempted to provide practical, real-worldanswers based upon our experience delivering procurement outsourcing services toover a dozen companies throughout the past four years.
1. What exactly IS procurement outsourcing and what is being outsourced?
This is perhaps the most basic question but it is a difficult one to answer. What one company views as procurement outsourcing, another may view as aconsulting or technology service. In our view, genuine outsourcing differs fromother procurement services based on the level and degree of on-going accounta-bility placed upon the services provider. Procurement outsourcing typicallyinvolves long-term (36 - 60 months) day-to-day management of a group of procurement sub-processes (e.g., requisitioning, supplier management) for multiple category groups (e.g., Administrative Supplies and Equipment, ndustrial Supplies and Equipment, Telecom, IT Hardware, Travel, etc).
Services provided on a consultative or an outsourcing basis each deliver significantvalue. The more important question to ask is, " which is more appropriate for myorganization?" To determine whether consulting services or outsourcing servicesare most appropriate, companies should ask themselves (A) is this an area thatmy company views as a strategic differentiator and are we willing to make thenecessary internal investments to become and remain world-class? or (B) is it
ICG Commerce-PROCUREMENT OUTSOURCING: The 10 Things Companies Really Want to Know 1an area that, if managed and executed properly, can drive significant value to my organi-zation but does not or will not receive the appropriate internal investment and focus? Ifyou answered yes to (A) then either consultants or a supplemental procurement outsourcing relationship with appropriate knowledge transfer and an exitstrategy can help you become world-class. If you answered yes to (B), then full spendmanagement outsourcing can help you transform and become world-class without having to make additional investments in your internal infrastructure.
Most companies we speak to that are looking for a procurement outsourcing partner to assume responsibility for day-to-day management of certain procurement sub-processes are searching for one or more of the following services for a specific scope of categories:
Strategic Sourcing and CASE IN POINT: Category Management $3B bearing manufacturerdrives continuous improvements. This typically involves the ongoing strategic by outsourcing category management of specific category groups - management from understanding expenditures, to devel- To meet global expansion targets, aoping the most effective category strategy, major industrial manufacturer estab-to driving the lowest total cost of owner- lished a three-year, $15 million costship through ongoing compliance, cost reduction plan. The company teamedup with ICG Commerce to focus onand supplier performance improvements. improving the entire procurementThe outsourcing of Strategic Sourcing & process - from sourcing to supplierCate... [download for more]
