Now that we’re in Part III, the doctor is going to tell you that even if you’re in the ²/₃rds of Procurement Organizations that do not think you’re understaffed, you are. Even if you have enough headcount, chances are you do not have enough skills to tackle each category and project to the maximum potential as each staff member in your department is only human, and can only master a limited number of categories in a job where you are expected to be a jack-of-all-trades. The only question is are you slightly understaffed or significantly understaffed?

If you’re significantly understaffed, you’re going to have to augment externally as there’s no way you will be able to handle a large influx of internal staff, even if they are temporary and category/service experts, as they still have to be trained on your organizational procedures and policies, guided towards optimal outcomes for your organization, and managed.

If you’re moderately understaffed, it’s often a toss-up that comes down to your particular needs and the strength of the options provided to you.

If you’re slightly understaffed, you might just need one or two more resources internally to reach your potential, but you still might want to consider outsourcing if the appropriate talent is not available to you or it’s easier to get budget approval if you outsource a project to a services provider.

So, if you think outsourcing is a reasonable option, how do you make the decision?

First of all, you make sure that outsourcing is a viable option. The best way to start is to apply a sniff test and make sure that the proposed projects don’t suffer from the 10 ailments of outsourcing, as presented in a presentation by Andrew Downard (of AD Supply Chain Group) and Karl Manrodt (of Georgia Southern University) on Delivering Better Service, Lower Costs and Increasing Innovation Through Vested Outsourcing, and make sure there are no hidden gotchas waiting to jump out and bite you in the backside.

As per the presenters, and a co-author of Vested Outsourcing, you need to make sure that the proposed project is not:

• Penny-Wise and Pound-Foolish
  and being considered for outsourcing just because outsourcing is expected to be cheaper
• An Outsourcing Paradox waiting to happen
  because you expect that the provider will do what you tell them to which you incorrectly assume is the best thing to do
• An Activity Trap
  where the provider is getting paid by the hour or transaction
• The Next Junkyard Dog
  where you will assign the project to internal experts who will micro-manage the contract
• The Result of The Honeymoon Effect
  where the provider is getting the work because they just went overboard on the last project
• Sandbagging
  where the provider is penalized if they don’t deliver a contracted level of effort, but not incentivized for a better than average performance, so the provider will deliver minimalist results
• a Zero-Sum Game
  where you don’t accept the provider’s preferred terms of engagement, assuming that what’s good for them is bad for you
• Driving Blind
  as you don’t have any formal governance processes setup to monitor the performance of the relationship
• Measurement Minutiae
  where you over-measure and under-incentivize the provider
• Measurement-Free
  although you shouldn’t over-measure, you should measure the results of each project

If the potential Procurement project passes the sniff-test, then you can seriously consider the categories and/or projects for outsourcing, provided you have an appropriate provider with talented personnel. But is that enough to make a decision? We’ll address that in Part IV.

In Part I we noted that, five years ago, Source One Management Services ran a survey that they summarized in a 4-part series on how Companies Face Limited Procurement Resources that demonstrated the dark state of affairs in Procurement at the time. They found that 1 of 3 Procurement departments were understaffed, and this was not a good thing as costs were climbing, GDP growth was flattening, and availability of supply in certain key raw materials and rare earth metals was diminishing and it took a talented Supply Management team to navigate these chaotic waters. We also noted that, since then, the situation hasn’t improved. Today, 51% of Procurement Leaders believe they do not have the capability in their terms to deliver their procurement strategy. But despite this, 72% of Procurement Leaders are spending less than 2% of their budgets on training. And the need for professionals is six times their availability.

We also noted that, in order to cope with the situation, there were three things you had to advance in an understaffed, undertrained, and overworked organization.

• Analytics, and not just technologically,
• Category Sourcing, and
• Value Source identification.

But that might not be enough on its own. So what else can your Procurement department do?

At a high level, your department can either do something or it can do nothing. Assuming your department chooses to do something, it can do it internally, or it can do it externally. If it does it internally, it can add staff or augment staff. If it does it externally, it can augment staff or outsource. If it outsources, it can outsource projects or outsource categories / commodities to a GPO. In other words, the options are:

• Do nothing.
• Hire more staff.
• Augment headcount with temporary staff.
• Augment headcount with service/solution provider personnel.
• Outsource project(s).
• Outsource categories/commodities to a GPO.

Even though you might think your superiors want you to do nothing, as they give you nothing to work with, and won’t hire more staff, that’s not the answer. You’ll just get more budget and staff cuts. And even if you can eventually get approval for temporary staff augmentation, that might not be the answer in the short term. It takes time to ramp a new hire up to speed, and that which is given may be taketh away even quicker if you don’t get results within the unrealistic time frames set before you.

This says that, in the short term, your best option is typically to:

• Augment headcount with temporary staff.
• Augment headcount with service/solution provider personnel.
• Outsource project(s).
• Outsource categories/commodities to a GPO.

But the right answer is not always clear. For example, while you might be able to save an average of 10% off of your office suppliers by switching to a GPO, if you are including high cost / high volume items like printers, external storage tapes and drives, and office chairs in your office supplies, you might do better sourcing those separately. If this means that the remaining spend is not enough for the GPO, that might still be okay if you can save enough on the big spending items and just negotiate an x% off catalog pricing on the rest.

And when do you augment staff on your own versus flipping a project to a service provider’s staff? If it’s just muscle you need to get your spending in order and to run one-off analyses to find new options and to make sure spend is put through the system (to get maverick spend under control), then your best option might be to augment internally. But if you need someone to source medium- or high-dollar complex / strategic categories, you probably need some category expertise. Chances are that expertise will be hard to find, expensive, and only needed once every couple of years. Unless the candidate comes with some other useful skills, then you might want to temporarily augment your staff with expert service provider staff.

Tough questions, let’s see what we can make of them in Part III.

This series originally posted in June of 2014. Since nothing has changed, it’s being updated and reposted as it is still ever so timely.

Five years ago, Source One Management Services ran a survey that they summarized in a 4-part series on how Companies Face Limited Procurement Resources that demonstrated the dark state of affairs in Procurement at the time. They found that 1 of 3 Procurement departments were understaffed, and this was not a good thing as costs were climbing, GDP growth was flattening, and availability of supply in certain key raw materials and rare earth metals was diminishing and it took a talented Supply Management team to navigate these chaotic waters.

Fast forward five years, and not only are many Procurement organizations still understaffed, but 51% of Procurement Leaders believe they do not have the capability in their terms to deliver their procurement strategy. But despite this, 72% of Procurement Leaders are spending less than 2% of their budgets on training. Add this to the fact that a survey by DHL in 2017 found that not only is the supply chain talent pool is not keeping up with the changing requirements as technology reshapes the industry, but that demand for supply chain professionals will soon exceed supply by a ratio of 6:1, if it hasn’t already, and the situation is bleak indeed. In summary, Procurement organizations are, and will be, under-staffed, under-equipped, an with not doing anything about it. Not good.

But often your only option for growth in today’s marketplace with increasing costs, increasing competition, and increasing consumer demands is cost control — only available through Supply Management. So what does this mean for you? What do you need to do to survive?

More Analysis
But real, effective, analysis that identifies new opportunities takes time. More time than just dumping your AP and P-Card databases into a spend analysis tool and running the canned top-n spend reports by supplier, category, department, etc. As per our classic, but still highly relevant, post on Spend Analysis – How Do You Get It Right, real savings comes from real insight which requires real analysis, which takes time, effort, and focus.

More Category Sourcing
If you’re short-staffed, you’re going to focus on the top n suppliers, categories, departments, etc. spit out by the canned reports from your spend analysis reporting tool. Some of these will have opportunities, but since you’ll already know most of these opportunities, you’ll miss many of your biggest opportunities, which are typically found in the high-opportunity tier-2 categories that never get addressed due to lack of resources. And you’ll also miss mid-tier opportunities that could be captured with new automation technologies and tactical procurement approaches, as identified in our recent post on how your tail spend should be vanishingly small and the typical losses associated with it negligible.

Identify New Sources of Value
The future of Supply Management, in an inflationary economy, is value-generation. Cost control is a good start, and in an organization overspending by 5% to 15%, it will make a big impact in the beginning. But once all of the fat is trimmed, the best you can do is reign in costs. This means that the next round of savings is going to come from identifying value-generation opportunities. Bundling and unbundling the right value added services for your organization; helping engineering identify more cost-effective alternate materials and production processes that are also more environmentally friendly, and may let you charge a sustainability premium; and identifying new market opportunities based on products and services your strategic suppliers could provide you with can all bring value to your organization.

What next? Stay tuned for Part II.