Dear outsourced service provider, you didn’t think that Carriers and 3PLs were going to get all the attention did you? You can cause your clients just as many headaches as these providers, if not more. In fact, you can also cause them cold sweats, fever, panic attacks, and even heart attacks if you play your cards right (and very, very, wrong for the client).

Outsourced Serviced Providers, especially those that are experts in what they do, can be a boon to an organization trying to get some quick savings to hit some (overly) aggressive (and stupid) savings targets set by the C-Suite (that doesn’t realize Procurement should be about maximizing value, not maximizing short term savings). This is especially true if the Procurement Service Provider (PSP) outsourced to is a GPO (Group Purchasing Organization) that already has contracts for goods and services in a number of categories required by the organization at rates lower than the organization is paying now, as any categories the organization can switch over result in instant savings. It’s also true if the provider is an invoice and payment processing provider that is fully automated and can accomplish the same task as the organization at half of the price (because 2 workers can do the work of 10 and the platform subscription is only the annual cost of 3 worker’s salaries) and free up valuable resources in the organization to focus on strategic value identification activities and not tactical processing.

But these benefits come at a cost.

Handing over a category means losing control on that category.

GPOs are going to select providers that please the majority of their customers, where majority really means the financial majority. So, if the GPO has a few heavyweight Global 3000 clients that account for a significant amount of its annual revenue, guess which clients get the greatest say and the contracts they want? (Hint: Not you!)

Handing over a contract means limited control over a slew of categories.

A GPO is only going to take a contract if it can make money. Since it typically charges a small fee per transaction, it knows it needs a lot of transactions to make money. As a result, it is going to demand a set of categories that mean a minimum annual spend, and the organization is going to lose a lot of control on those categories for the length of the contract.

Handing over processing hands over control … and control over realized savings.

You are dependent on the provider to do an m-way match and detect over billings, duplicate billings, and failure to account for return credits and volume-based discounts and rebates. If they just get the invoice and pay it blindly, and the invoice for a multi-million category is still at last years prices, you could lose hundreds of thousands of dollars.

Handing over processing hands over knowledge.

Knowledge of tactical procurement processing operations, best practices, and the best and worst suppliers from a Procurement perspective is now in the hands of the provider. As tactical processors are displaced and leave, and more and more focus is put on other Supply Management activities, the organization becomes more and more dependent on the provider for even simple tasks. This makes it incredibly hard to pull the function back in house if it ever wants to, or to even switch to another provider in the future. It’s like giving the supplier Power of Attorney. Not a good thing.

Handing over sourcing is giving them the keys to the castle.

Losing control over tactical processing is bad enough, but losing control over sourcing of a set of indirect categories makes you ultimately dependent on the provider. As the great Angus and Malcolm Young said twenty-five years ago, the service provider, she got you by the …