Recently, the European Leaders Network published How fast, how far?, a summary of a recent European Leaders in Procurement Roundtable in London on Procurement Outsourcing. If done right, outsourcing can lead to great results, but if done wrong, it can lead to nothing but headaches and failure.
The report contained a number of tips and insights that are worth summarizing.
- The key to successful outsourcing lies in the preparation.
- Strategic Sourcing is a key benefit driver and one should select an outsourcing provider with the competency.
- A good procurement outsourcing provider should provide you with financial value on a discounted cash flow basis – you should see savings very quickly.
- Ruling out parts of the procurement process for outsourcing could prove counterproductive.
- Before trying to outsource or optimize a process, make sure you understand how it fits into the larger business process.
- There are not a lot of procurement outsourcing specialty providers in the marketplace. Thus, the best way to select a provider is to identify a small number of providers who could be right for your organization and collaboratively arrive at a proposal – then select the best mutually beneficial deal.
- Technology is simply an enabler – effective delivery is the key.
- A contract should include well thought-out and clear strategies for ending a relationship if it should prove necessary.
In addition, SupplyManagement.com asked the eternal question, To outsource or not to outsource?. which summarized trends and the basic outsourcing models of basic proposition, access to expertise, focus on core, and no role.
The article noted that outsourcing projects are not easy, communication with cross-functional teams may be a challenge, and trust could become a barrier. Furthermore, it noted that procurement outsourcing organizations are likely to be judged against tighter savings definitions, which leads to more challenging savings targets, which in turn can drive different behaviors. (Which may or may not be a good thing. Another reason why it’s important to mutually collaborate on the relationship definition.)
For reference, the models that it presented are:
- Basic Proposition
Traditional, cost-focused tactical procurement outsourcing.
- Access to Expertise
Traditional procurement outsourcing for reasons over and above the basic proposition of cost.
- Focus on Core
Strategically mature procurement department that wishes to outsource certain elements of its operation to focus on core competence.
- No Role
A strategically mature procurement department outsourcing elements of its operation that are in fact core competencies of its operations. In this situation, a company is unlikely to gain anything from procurement outsourcing.