Could Billions Be Saved By Best Practices And Supporting Technology?
1 comment December 7th, 2006 David Bush - Iasta
Purchasing recently ran the article Billions to be saved by offshoring procurement in response to the Hackett Group’s recent press release that Offshoring of Back-Office Functions Could Generate $58 Billion in Annual Savings for Fortune 500 based on recently completed research.
The article quotes that “advances in technology, along with increasingly educated global work forces, enable the portability of business support activities in areas like information technology, finance, human resources and procurement”. Furthermore, it quotes that “the average Fortune 500 company could save almost $10 million a year by outsourcing or offshoring procurement functions such as purchase order processing and sourcing execution. Those moves would impact, on average, 275 procurement jobs per company”.
The reason, as quoted, is that “many companies are relying on outdated sourcing analysis techniques that lead them to materially underestimate the benefit available through off-shoring back office operations. With labor arbitrage savings nearing 60%, Hackett finds that executives must analyze their process optimization opportunities to capture the potential value of centralization”.
However, what the article does not note is that there is absolutely no reason why firms can not bring their sourcing analysis techniques up to date using best of breed (on-demand) eSourcing suites that integrate best practices, streamline sourcing cycles, and allow sourcing professionals to bring significantly more spend under management with considerable savings expectations.
Furthermore, there are a number of eProcurement suites that can greatly streamline basic procurement functions such as order processing and invoice reconciliation, which means that these functions can be kept in house with minimal labor, which can be redirected to more strategic sourcing functions, allowing you to bring even more spend under management!
At Iasta, we have enabled numerous Fortune 500 organizations with eSourcing and have found that most of our customers are able to significantly increase spend under management and drive greater cost savings, as a result. I believe that, armed with the right technology and best practices, local operations can perform better than offshore operations and that the additional savings generated will be more than the labor savings associated with offshoring. I am sure opinions vary wildly on this, too.
Entry Filed under: General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
