2010 should bring a flurry of new acquisitions with many established companies looking to expand product lines and increase growth within the organization.
Of these companies looking to expand through acquisition, raising capital expense to fund the newly acquired business unit will be a challenging experience in ramping-up operations with manufacturing and warehousing distribution.
Many companies will be looking to outside warehousing and distribution ( 3PL’s ) assistance in order to compensate the need to either add-on to a existing building or to reorganize a current floor plan.
It makes perfect sense when acquiring a new business unit to have the flexibility of outside warehousing and distribution. With all the challenges the current organization has with product line simplification, product integrity, customer retention and merging of operations and customer service the 3PL can add much value to the company but lending it’s expertise in distribution challenges.
Having the flexibility and an open working communication with the outside warehouse and distribution facility allows valuable time to evaluate and streamline the newly acquired business unit or product line.
The organization can now grow and nurture the new product line or reduce the number of SKU and not have it interfere with the current core business.
Effectiveness, is key to competing in today’s business environment. Logistics is a process, a supply pipeline which connects you with your vendor/supplier and your customer.
Whether you compete domestically or globally competitors, vendors, suppliers and customers are worldwide.
The significant cost of logistic/distribution effects the entire supply chain. Logistics importance integrates and develops long-lasting alliance is between the vendors/suppliers and customers. Logistics contributes to a competitive advantage, viewed as a comprehensive process objective, making your product more competitive in the global marketplace.
Ask yourself how does your business unit measure up? Is your logistic/distribution network competitive? Does your current logistics/distribution network meet the requirements of your customer? Most importantly is it currently effective?
To summarize, a formal logistic program will create a competitive advantage for your business unit.
Service and cost benefits can distinguish you from your competitors.
A formal logistic network program will enhance your status as a supplier domestically and more importantly in the global network.
To approve Spend Analysis projects, project Sponsors often need to justify to their management why they need to utilize Spend Analysis providers to do the project, as opposed to internal IT resources. Some companies may not have this problem in that they don’t have IT resources available, so it is obvious they need to use outside help. But sometimes there may be conflicts internally. The simple answer is that internal IT resources usually do not have the focused experience and knowledge regarding the unique data cleansing and classification needed for Spend Analysis.
Internal IT resources typically have…
Familiarity with the corporate data sets and applications
Familiarity with the Corporate IT environment
Familiarity with a Corporate Reporting tool
Internal IT resources likely do not have (and Spend analysis providers have in spades)…
Related to (1) above…. IT resources can easily provide data files, but Vendors are more experienced to integrate and reconcile organizational data to specific Spend fields needed to properly drive meaningful Spend Analysis. Significant relationships exist between Spend data, and vendors know what to look for. They also have structured tools to process the data effectively.
Related to (3) above – IT resources can help with getting cleansed and classified data back into the company reporting environment, if a company reporting tool exists. Companies can also utilize vendor “Smart” Reporting, which is tailored for detailed Spend visibility and opportunity assessment.
Experience with cleansing data – for example, we have over 50,000 cleansing rules built over 12 years across over 200 projects and customers in many industries, already defined.
Experience with Supplier Grouping.
Experience optimizing Supplier data enrichment from vendors such as CVM Solutions or D&B.
Experience with data classification, handling numerous taxonomies for analysis, and grouping Spend data into meaningful sourcing categories. For example, we have a master library of over 100,000 master rules for items and categories we have seen across all those projects mentioned above.
Experience with structured data “refresh” and handling the nuances of combining, re-cleansing, re-grouping, and reclassifying data with rigor to all the taxonomies in use.
Experience in foreign languages and associated data processing and translation.
Experience in mining and reporting in-depth level s of “savings opportunity assessment and identification” versus basic pivot tables and cubes.
Internal IT resources usually do not have authority across divisions and countries to get data, so a vendor can help to make the integration and change happen.
Spend Analysis vendors provide focused tools and resources to implement advanced Spend Analysis within your organization, and can be utilized effectively in place of internal IT resource. And the cost is usually less than 1 or 2 full time equivalent headcount, which is a bargain as you discover savings opportunities.
An article in the Wallstreet Journal provides a wonderful example of how implemented best practices and process improvement programs like Six Sigma can go astray after experts move to other projects, Managers relax accountability and excitement fades. The cartoon depicted below by Leif Parsons, gives the perfect illustration of what happens in the progression of these engagements.
The article reveals how at one aerospace company this implementation was executed then returned to the old poor practices.
The first step, as with any improvement program like AA or Six Sigma, is admitting and identify that you have a problem.
In the Aerospace company example, the second step was to bring in help by utilizing an expert in Six Sigma that energized the staff and helped them to understand where they needed to improve. They provided accountability in assigning tasks to these improvements. Employees embraced the new processes and implemented them. At first it slowed productivity, but quickly, as they became more accustomed to the new methods, productivity returned to normal levels. Once the goals of a department were reached, they were communicated with the company as a whole. This empowered the employees and gave them ownership of the project and their achievements. They are also rewarded with other rewards such as, restaurant gift cards, bonuses and exposure through notices in corporate newsletters.
After goals of improvement had been reached in one department, the expert and Managers would move their attention to another project or department assuming the success would sustain itself without continued support. This is where accountability loosens and enthusiasm for the process starts to revert to old practices. You can see this progression in the cartoon.
If you are one of these companies struggling to understand why these programs aren’t continuing to demonstrate results, ask yourself a simple question….What accountability and continued support am I providing my teams so they don’t revert? Think outside the box. You don’t need an expert to solve this problem. You need an expert to identify and fix it originally. The same goes for eSourcing technology deployments. Vendors can diagnose the opportunity and implement the technology properly, but sustainability needs to constantly be addressed with either internal or external resources.
Telecom is normally one of the largest spend categories that is over looked within large multi-national corporations. Most CIO’s don’t have the knowledge or background to understand the spend they have in Telecom. This lack of understanding leads to very ineffective Telecom sourcing projects.
According to research conducted by Forester Consulting, “80% of all telecoms sourcing projects are not as efficient as they should be, and large organizations globally are feeling the effect to the tune of £12bn annually.”
This is a large amount of savings missed because of poor visibility and understanding when running these projects. This is a complex category in which IASTA has had enormous success in continually producing savings. We have continually been able to provide at least an 8% savings to clients in this one category alone. This small percentage in savings equates to a large dollar savings when looking at the total spend in Telecom.
As the article goes on to state, “this issue is one of getting in the right people who understand the technology and the objectives of a telecoms sourcing strategy.”
Take a close look at your internal knowledge base of Telecom and see if this is an area that is not producing optimal results when it should.
While ITIL, the most widely accepted collection of best practices for IT Service Management (ITSM), has taken an important first step in evolving its guidance on outsourcing within the context of ITSM in its 2007 Version 3 release, it may have fallen short on providing the breadth of advice required in today’s market. Of particular note is the introduction of a few integral sourcing-related frameworks, including Service Provider Types in the Service Strategy core book and Service Delivery Strategies in the Service Design core book. Service Design has also consecrated a separate process to Supplier Management aimed at addressing service provider selection and relationship management activities.
While these additions can be seen as improvements over ITIL V2, the overall approach to engaging with suppliers in ITIL V3 could be construed as overly procurement-focused and lacking in sufficient guidance on the level of integration and governance required across the service delivery value network and service life cycle. Also unclear is the extent of the inter-mediation required of the client- retained IT organization to effectively integrate outsourced IT services and translate them into value for its business customer.
To help navigate the new sourcing related ITIL V3 guidance and bridge your ITSM and outsourcing strategies, consider these 5 tips:
1. Ensure service management integration is appropriately resourced in the client-retained IT organization. While Supplier Management can serve as the point of contact for relationships with external service providers, these resources typically do not have the skills or capabilities to integrate service management processes across organizations in an outsourced model. When service management remains a client-retained function, we recommend giving ITIL service managers the responsibility to integrate outsourced IT services to ensure effective end-to-end service delivery, separating this from the Supplier Management responsibilities in the organization.
2. Take a pragmatic approach to integrating ITSM processes and tools. When entering into outsourcing agreements, be sure to define the integration points, handshakes and required inputs and outputs across all ITIL processes and functions — particularly Service Desk, Incident Management, Problem Management and Change Management — between organizations in the service delivery model. Bear in mind that external service providers will have their own processes and tools, which will need to align with those of the client-retained IT organization. Do not over-engineer this integration but do consider moving to the service provider’s methodologies if they are more sophisticated. Note that this exercise becomes increasingly complex the more service providers in the service delivery model (see tip number one). At a minimum, make sure all parties are clear on who is ‘leading’ and who is ‘following’ and make sure these roles are documented in the various outsourcing agreements.
3. Implement a business-focused Service Catalog. Define your Service Catalog first in terms of the services delivered to the business customer (Business Service Catalog) and then work backwards to define the contributing IT component-based view (Technical Service Catalog). This will help ensure that the right resources and capabilities to deliver to the business service requirements are identified and will clarify the optimal sourcing mix for the service. Do not use the external service provider’s Technical Service Catalog as your Business Service Catalog.
4. Negotiate a Service Level Agreement with end-to-end service levels. Do not begin service level discussions with suppliers without having first implemented a formal Service Level Agreement (SLA) with your business customer. Formalize end-to-end service levels in a business-focused SLA and define the IT component service level targets in Underpinning Contracts with external service providers and Operating Level Agreements with internal service providers. Always ensure that the combination of these targets will meet the service levels agreed to in the SLA. Lastly, remember that an Underpinning Contract is never a surrogate for an SLA with your business customer.
5. Look beyond ITIL for IT governance. Against the backdrop of corporate malfeasance and recent legislation aimed at preventing it, corporate governance — of which IT governance is a subset — has taken on a renewed focus in business. While ITIL V3 does broach the subject of IT governance, particularly in IT Service Continuity Management and Information Security Management, Supplier Management provides only limited guidance on IT governance related to sourcing. For this, a number of other frameworks can be consulted. Of particular note is COBIT (Control Objectives for Information Technology), which is prescriptive on what to monitor and control and serves as a compliment to ITIL, which advises on how to implement monitoring and control as process activities.
The economic situation in 2009 has changed the game for banks of all sizes. Going into 2010 they are all looking for new business strategies to rebound. Across the board, banks will be restructuring in 2010, but what types of strategies will they look to employ and will they turn their eyes to “the cloud”?
Onshore operations have always provided the lowest margin of risk – but at a higher cost than offshore operations. Off-shoring, now a generally accepted approach to multi-process IT and BPO services for top-tier banks, will draw in more mid-tier, regional banks interested in taking advantage of the managed services that are now widely available.
The anticipated service provider consolidation in the next year will also allow single large providers to become a tempting comprehensive solution for financial institutions. The need to minimize costs and reduce risk may lead the banking world in two distinct directions: a flight toward larger, more established providers or toward niche players to distribute risk.
And, of course, we can’t ignore the enormous “cloud” in the room. As more and more services and products are made available online, financial services firms will experiment with the level of security, service management and contract challenges they present. It’s possible that this could be the year of true paradigm change meaning broad acceptance of cloud based services – which could significantly disrupt established service delivery models.
2010 will truly be a year of balancing onshore and offshore services with Captives and third-party solutions while dipping a toe into the world of cloud based services. The potential opportunities available by the cloud and consolidation of service providers could set banks up for a delivery model hybrid not yet experienced in financial services.
More companies are looking at centralized distribution and servicing their customer base in a timely manner in order to control costs, control inventory overhead and to improve overall customer service.
Centralized distribution sometimes has its own challenges and issues based on schedules, inventory and transportation network.
Other factors that should be considered is the size of the of the distribution center, the layout of the facility and capabilities of handling many more multiple shipments on a daily basis can result in many more LTL carriers.
Zone distribution to major market zones can eliminate much of the congestion and the handling of freight multiple times elevating issues with shortages, damages, and non-timely deliveries.
It is important to identify major market demographics pertaining to customer base, product distribution, field sales force and capabilities of end users and master distributors.
A major candle manufacturer based in the United States was faced with major issues such as damages, lost shipments, inventory shortages and untimely deliveries.
By developing major market zones utilizing 80/20, the manufacturer was able to overcome many of the above challenges and issues by driving carrier tender to specified market zones based on schedules ultimately utilizing local end-user delivery suppliers.
Order to Cash (OTC) outsourcing has typically been on CFOs’ lists of “potential outsourcing opportunities,” but it has not risen to the top of the list until recently. TPI is seeing more interest and activity in OTC outsourcing this year in spite of – and possibly because of – the depressed economy.
Several emerging trends in OTC are catching CFOs’ attention and changing their priorities on that list of outsourcing opportunities. These are the Top 5 reasons why OTC is growing in popularity:
The shift from function-based to process-based (“end-to-end”) outsourcing. In the past, OTC outsourcing solutions have focused on just two or three functions within the OTC process (e.g., credit, collections or cash applications). But in the past few years, sourcing service providers have invested in developing “end-to-end” OTC capabilities that offer integrated solutions (tools and processes) across order management, credit management, invoicing, cash application, dispute resolution and reconciliation and analysis. These end-to- end capabilities drive higher efficiency in transaction processing as well as resolution of order entry mistakes, pricing disputes, billing errors and credit or collection issues. The benefits of transparency and accountability that come with service provider investments in end-to-end capabilities are paying off with increased buyer interest and confidence.
Shifting buyer interest from offshoring to transformation. The “lift and shift” model has been the backbone of most OTC solutions and has driven cost savings for most companies. Most service providers have established networks of offshore centers with the technology and telecommunications infrastructures that are necessary to support customer requirements. Separate from and beyond offshore capabilities, though, some service providers have made investments to quickly broaden their offerings by making strategic acquisitions of niche companies with deep OTC capabilities. These providers have combined the proprietary tools and methodologies from those acquisitions with their other service delivery resources and capabilities to provide robust OTC transformation capabilities to their customers. The providers are offering much more than just “labor arbitrage” and are differentiating themselves from their competitors in the early stages of customers’ RFI/RFP processes.
Increased focus on customer service requirements. Buyer concerns with service provider offshore capabilities in customer service and support are not uncommon, given the language barriers and timing in getting issues resolved. This sensitivity is particularly high for companies that require higher levels of customer communication and contact. Given these sensitivities, TPI is seeing situations where customers are choosing onshore and nearshore solutions to gain better support and higher customer satisfaction (internal and external customers) by foregoing higher-level cost savings from offshore options.
Shift from customized to standardized OTC solutions. As part of the drive to “end-to-end” OTC outsourcing solutions, service providers are leveraging their investments in technology by pushing to their customer bases standardized tools and methodologies that require lower costs to implement and maintain. This trend will likely take hold in the more transaction-based areas of invoicing and cash applications, while demand for more complex and customer-facing activities (such as order management) will still require higher solution customization.
Focus on cash flow. Companies are evaluating OTC outsourcing opportunities with several goals in mind, including obtaining cost savings while balancing customer support and satisfaction requirements. A benefit that has always been part of the discussion is cash flow. Service provider capabilities to reduce days sales outstanding, to improve receivable agings or to reduce receivable write-offs have typically been a part of the “benefits” discussion. But with demonstrated end-to-end capabilities by service providers, the cash flow benefits are even better, more visible and more attributable to the changes and improvements brought by service providers’ OTC solutions.
The net effect of these five trends is that OTC is not just one of the topics on CFOs’ lists of outsourcing opportunities . . . it is quickly becoming the area of focus.
TPI’s CFO Services experts can help your organization produce an objective assessment of your current sourcing strategy and develop a roadmap for your future strategy with objective, risk-balanced, and forward-oriented solutions for maximizing value during economic uncertainty.
By Don Flores, Partner & Director, State and Local Government Services, TPI
I attended the 40th annual conference of the National Association of State Chief Information Officers, which represents state CIOs and IT executives and managers from the states, territories, and the District of Columbia. At different times during the conference, we were asked to participate in interactive multiple-choice poll, and the results were very interesting. On the first day, 67% of the state IT officials in the audience predicted 2010 would bring a 5% reduction in their funding (only 6% said it would be up and 13% said it would be the same). And when the group was asked what should be the top priority for state CIOs next year, “seeking efficiencies and cost control” won in a landslide.
This is not an easy time to be a state or local government IT leader. At a time when public funds are in the tank due to the economic downturn, demand has never been greater for services, especially in highly complex areas such as disaster recovery, data security and e-government. The pressure is easy to see in the Commonwealth of Virginia, where a recent legislative audit of outsourcer Northrop Grumman found repeated outages and costly delays in its handling of the government’s IT systems and has led to calls to cancel the contract.
Smart organizations—whether they’re in the public sector or the private – know that proper governance of outsourcing arrangements must be agreed upon ahead of time and built into every agreement. But crafting a successful sourcing strategy actually begins much earlier than that. TPI has recently kicked off IT assessments with the State of Vermont, State of Washington and City of Houston aimed at identifying opportunities to reduce costs and improve service delivery. Carefully exploring all options is the only way states and municipalities can find the efficiencies their budgets require while still providing the high-quality IT services their citizens demand.
Outsourcing governance is the business of ensuring that all of the potential value of an outsourcing contract is actually achieved. During our 20 years of helping companies maximize the value of their outsourcing contracts, we have identified these Top 5 observations related to the mission-critical governance function:
Outsourcing governance is still maturing, and companies continue to have significant difficulty harvesting the value from their contracts. Outsourcing as an industry is mature, yet clients worldwide are still struggling to effectively manage their outsourcing agreements. In a study of companies that had recently outsourced to multiple service providers, 84 percent of respondents stated that they did not have what they regard as a mature governance model (Financial Times, July 2009). Additional research by the International Association of Outsourcing Professionals (IAOP) cites that, “. . . 63 percent of companies surveyed believe they lose an average of 25 percent of contract value due to poor governance.” And TPI’s own research indicates that between 5 and 30 percent of the expected value of outsourcing transactions is lost through ineffective governance. In a typical outsourcing agreement this equates to roughly US$600,000 per year of lost value for every US$10 million in annual contract value under management.
Early, comprehensive governance planning and design is critical to long-term success. Implementing an outsourcing governance organization takes time, and the first 18 months of any outsourcing agreement is critical. Without an effective outsourcing governance group in place early to guide the relationship, value leakage is inevitable. Most companies begin this process too late, thus their ability to manage the contract in those critical first few months is compromised.
Outsourcing takes more than evaluating service provider performance to be successful. In the early days of outsourcing governance, clients limited their activities to reviewing service level data generated by the service provider and checking their invoices for accuracy. Today’s best run outsourcing governance groups understand the interdependencies between all of the governance processes across four key disciplines – performance, financial, contract and relationship management. They constantly measure the effectiveness of the key governance processes and identify opportunities for continuous improvement.
Separating decision making and relationship activities from supporting governance tasks unlocks new levels of efficiency. As is the case with most back-office functions, there are aspects of outsourcing governance that can be performed by a third party more effectively and efficiently than can be accomplished in-house. TPI advocates that clients never abdicate responsibility for decision making and that they should maintain the relationship with their service providers. However, there are many support functions that can be considered for outsourcing (i.e., performance analysis, invoice verification, and contract administration [including management of the governance library]). TPI is delivering these services to clients today through a combination of onsite and offshore support models.
Technology enablement is becoming a necessity for efficient outsourcing governance. What started out as a set of executive dashboards summarizing performance and financial data has evolved into the need for higher-order management tools. Today’s outsourcing governance organizations require integrated tools that go beyond dashboards to detailed reporting capabilities; automated workflows for key governance processes; automated data feeds from service providers and a comprehensive governance library.
While many aspects of the outsourcing industry are quite mature, for many reasons clients’ abilities to effectively manage their service provider relationships remains an area where significant opportunity exists to reduce value leakage and maximize beneficial results.
It is undeniable that C-suite sponsors of strategic sourcing initiatives are increasingly focused on the ability of their service providers to deliver outcomes rather than provide input. These same sponsors are tasking transaction teams with creating outcome based agreements, often to the bemusement and confusion of these teams as they cast around trying to create this new paradigm.
A starting point for any team seeking to establish an outcomes based agreement is to consider the idea that all contracts are outcomes based – whether swapping beans for a cow or dollars for improved customer satisfaction. The value in accepting this idea is that it directs the mind away from a focus on how to develop a new contracting model. Instead it allows strategists, performance managers, and C-suite sponsors to consider what management techniques, particularly sourcing techniques (new and old), are most likely to ensure that the transaction being entered into will deliver the outcomes sought.
As simple as it sounds, the first step in delivering an outcomes based agreement is to identify the desired outcomes along with the outputs and inputs needed to achieve them. At this stage, some old-school management tools can be useful, although they may be tested by the complexity of both strategic sourcing agreements and delivering outcomes across a network of organisations. Simplest among these tools is the SMART test.
SPECIFIC: Are the outcomes being sought specific? If they are inherently complex, which is probable, are there future problems that are likely to result when a commercial relationship is established? Task project teams with anticipating these problems and identifying those management techniques likely to be needed to ensure that problems are dealt with in a manner that preserves the effectiveness of the agreement.
MEASURABLE: How can the outcome, and more particularly the service providers’ contribution to the outcome’s achievement be measured? This is rarely simple since outcomes are at the least dependent on inputs from the client and service provider. Commonly, multiple service providers contribute to an outcome and each will inevitably have a view on their own contributions and their co-contributors failings.
Similarly considerations of ACHIEVEABILITY, REASONABLENESS and TIMELINESS need to be made and factored into the design of the agreement.
A project team that understands the SMART dimensions of the outcomes they are seeking is well equipped to establish the obligations of all parties, the means by which achievement of these obligations will be tracked, and the management techniques that will be used to remediate situations where outcomes are not being delivered.
What’s a buying/leveraging group?
A buying group is a collection of buyers that aggregate their demand into a single ‘account’ and negotiate with a commercial carrier/s for better prices and/or improved services and more importantly a “Known name” in the industry. The group of buyers should be organized around an industry sector or geographic region.
How do buying/leveraging groups work?
A group is usually formed when an individual or business decides use bulk buying tactics for transportation services. Once a sufficient group of customers is formed, the guaranteed customer base is used to negotiate volume discounts with service providers and carriers.
What are the advantages?
Buying groups are low risk and require little or no investment and the groups don’t have to be physically co-located just share the same “common goal.”
What are the drawbacks?
Buying groups depend on a guaranteed level of spend and are therefore at risk of being undermined by carriers offering the larger companies in the group separate deals (known as ‘cherry picking’) the group must also be accountable and be geared towards the 80.
Summarize:
The buying group or leveraging group is making a commitment to each other business unit to share information and a “guaranteed” piece of the business. “Commitment” is the largest most important piece of the organization and must be maintained and monitored on a regular basis and each business unit must have a say in each and every move.
Buying groups can grow expeditiously to encompass other units….. all geared to the “common goal.”
By Nigel Walker, Partner & Managing Director, Energy, Utilities, and Life Sciences Services, TPI
The pharmaceutical industry is seeing a lot of mergers and acquisitions as companies seek ways to reduce costs even while they can see a drop in their future revenues looming due to drugs coming off patent. But mergers will not deliver savings or revenue increases if executives do not manage the integration effectively and decisively.
Big mergers have many moving pieces. The complexity is compounded by the fact that companies in the pharmaceutical space have often been traditionally been very decentralized. When you combine decentralized organizations, you run the risk of losing the advantages of a merger. For example, it’s not unusual to see HR working towards one goal, while IT works towards another. Departments, business units and integration efforts cannot be isolated. Newly merged companies that allow themselves to operate in the same decentralized manner they followed before the merger will have the much of the same overhead and cost structure they had earlier.
To achieve the BUSINESS GOALS of a merger, companies must holistically look across their business for cost savings. One quick win organizations often overlook is corporate real estate, which can offer huge cost savings if managed right. We know firsthand the cost savings that can be achieved. Our work with other organizations is proof that great cost savings can be achieved in year one by taking a disciplined approach to merger integration.
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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