Growing Evidence that Procurement Outsourcing is Rapidly Moving to Strategic Sourcing, Category Management and Technology

By: Bill Huber, Director, CPO Services, TPI

Recently, ICG Commerce announced that it signed a four-year agreement with Houghton Mifflin Harcourt Publishing Company ─ the world’s largest publisher of educational materials for pre-K–12 schools ─ to provide ongoing sourcing and category management services. HMH will leverage ICG Commerce’s deep category expertise, supported by a robust market information and technology platform, to drive cost reductions across its indirect spending in areas including IT, telecommunications, marketing, facilities management and travel.

Advance Auto Parts also recently signed a procurement outsourcing agreement with IBM. It will “allow Advance to focus resources on achieving its key strategies, provide savings opportunities by leveraging IBM’s buying power during vendor negotiations, give access to IBM’s global expertise and best practices for both sourcing and expense accounts payable, and improve processes and organizational capabilities with both procurement and accounts payable policies.” Click here for Advance’s full news release.

Over the summer, IBM announced that is has expanded its procurement outsourcing services offering with new strategic sourcing services and new procure-to-pay services. Writing in Supply and Demand Chain Executive, IBM’s VP of Procurement Services Bill Schaeffer noted that, “Once a company has gained full advantage from the potential value offered by sourcing and procurement, the only remaining direction to look is outside of the company for additional leverage and value. At the simplest level, this begins with benchmarking and application of ‘best practices.’ However, benchmarking really only begins to point us in the right direction and cannot deliver the full value that a company seeks. True spend leverage occurs not just when a company uses the best ideas of another business, but when it actually leverages the resources, infrastructure and spend of other businesses in concert with its own to derive more value than it can by itself.”

India-heritage service providers have also moved solidly into sourcing and technology. Infosys launched its “Sourcing and Procurement Academy,” focusing on a “sourcing and procurement curriculum to enhance competencies and meet the goals and objectives of both the employees and the company. Our academy enhances the skills of procurement professionals to deliver better value to customers.” Infosys has also launched a sourcing and procurement business platform based on the SAP SRM platform with niche applications such as workflow, OCR and document management. Other leading India-heritage providers such as Wipro, TCS and Cognizant have also built strategic sourcing capabilities by leveraging their technology capabilities and growing consulting capabilities.

Global leaders Capgemini and HP are also investing in procurement capabilities. Capgemini announced that it is working with European e-purchasing solution provider IBX to launch a BPOpen technology platform for procurement. Capgemini has indicated that “this new solution is aimed at reducing the cost of procurement for companies while also accelerating and reducing the time to ROI on the deployment of e-procurement” to “enable their clients to incur one-tenth the implementation costs over traditional implementation approaches in their sourcing efforts.”

There are a number of reasons that procurement outsourcing has expanded so visibly into strategic sourcing, category management and technology:

  • To increase spend under management, procurement outsourcing providers bring in additional, specialized category expertise, typically by expanding a company’s sourcing team from tens to hundreds.
  • These additional resources leverage real-time market intelligence gained from continually analyzing sourcing categories for multiple companies throughout the year (versus once a year or every three years) and use this information advantage to deliver better sourcing results.
  • To help companies achieve high levels of compliance and maximize realized savings, providers have invested heavily in developing:
    • Reporting and analysis tools to identify, monitor and continuously improve savings programs
    • Integrated processes, infrastructure and dedicated resources to actively manage categories and savings initiatives post-sourcing

Combined, these capabilities can help companies achieve and sustain greater results in a shorter period of time.

Procurement executives and CFOs are using this advantage to position procurement as a key source of cash or working capital that can be used to meet strategic objectives such as improving margins or funding growth and innovation. The procurement outsourcing sector is continuing to evolve, moving into project-based sourcing, logistics and other supply chain management functions. It is currently one of the most dynamically developing areas of outsourcing.

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