E-Sourcing Forum » Could Billions Be Saved By Best Practices And Supporting Technology?

Could Billions Be Saved By Best Practices And Supporting Technology?

December 7th, 2006 at 06:18am 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The reason, as quoted, is that “many companies are relying on outdated sourcing analysis techniques that lead them to materially underestimate the benefit available through off-shoring back office operations.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.

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Entry Filed under: General, Supply Management Best Practices, Technology / SaaS, e-Sourcing Marketplace

1 Comment Add your own

1. Eric Strovink | December 7th, 2006 at 4:12 pm

The key point is this: If current procurement processes are labor-intensive, and they cannot be changed, then moving those processes to a venue where labor costs are lower will save money — so long as there are no disruptions or problems caused by the dislocation. If, on the other hand, the focus changes to re-engineering procurement processes intelligently — using e-sourcing and e-procurement tools effectively, for example, and/or using BPM tools to systematize previously ad-hoc activities — then the savings opportunity may be much greater.

The winners of the procurement process insourcing/outsourcing race will be those companies and BPO vendors who become best-in-class at injecting value and intelligence into the process. If tying a shoe is necessary, then tying a shoe less expensively will certainly save money; but avoiding tying the shoe in the first place wins the prize.

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