Is Indirect Procurement BPO Right For Your Organization?

The indirect procurement BPO market is still immature, with few major contracts signed in 2007. While buy-side awareness of procurement BPO is increasing it is still variable, for example in understanding that external service providers typically augment rather than replace internal procurement personnel. Also there is relatively little choice for organizations in terms of vendors.

Early contracts have seen discrete manufacturing and CPG sectors in the vanguard, and most early adopters have taken a piecemeal approach, being cautious in both spend categories and processes being outsourced.

There are some early signs in the marketplace of a small resurgence of interest in full 'source-to-pay' BPO, although NelsonHall research shows a marked preference amongst organizations for either 'source-to-contract' or 'procure-to-pay' outsourcing.

In addition to cost reduction, organizations adopting BPO for part of their indirect procurement will increasingly look for the external services provider to:

• Help the procurement function become more flexible and faster to align to their companies' evolving needs, for example in moving into new geographies or requiring new types of goods and services
• Improve quality management, for example by improving feedback loops from requisitioners on the quality of goods and services received

NelsonHall recently conducted a user survey focused on four sectors within Continental European that are showing active interest in indirect procurement BPO. This builds upon a global survey of nearly 360 organizations across all regions and sectors. The presentation covered a few highlights from the survey, including organizations' levels of satisfaction with various aspects of their indirect procurement, their propensity to outsource, and the key criteria in selecting an external services provider.

Unsurprisingly, organizations express much lower levels of satisfaction with their management of indirect spend than with direct. Most areas of major concern identified in the latest survey have been expressed by CPOs for some years: in addition, NelsonHall is seeing an increasing desire by some organizations for external services providers to be able to provide sourcing support in new markets or to be able to manage lower levels of spend across geographies. Interestingly, the level of dissatisfaction with certain spend categories is sometimes very different from an organization's willingness to outsource the management of that category.

Stormonth gave an overview of the success rate of recent types of indirect procurement initiative: for example, major IT initiatives and cost reduction efforts involving cutting procurement headcount have been the least successful. The presentation also discussed the most common types of indirect procurement initiatives that organizations are planning to commence within the next two years and the objectives behind initiatives.

The presentation highlighted a few shifts happening in the nature of contract activity; for example, while procurement BPO has typically been regional to date there are early signs of some multi-nationals looking for an external services provider to provide support across geographies.

The presentation also considered whether procurement is being outsourced as a standalone area or bundled with finance and accounting and touched on the key vendor selection criteria seen in two recent major contract awards not in the public domain.

At the end of the session, NelsonHall posed six key questions for procurement departments to consider which, if the answers are yes, suggest that outsourcing for indirect procurement is an attractive option.

If you are considering indirect procurement BPO for your organization, NelsonHall will be happy to discuss your options. To find out more about NelsonHall's research in this area, published within our Procurement Outsourcing subscription program, please contact Paul Connolly.