Getting Real Results from Your Purchase-to-pay Opportunities

Although those primarily responsible—chief procurement officers—recognize the proverbial pearl in the oyster of procurement, they have been unable to reach it for a variety of reasons, most of which relate to how internal procurement organizations are typically positioned, resourced and operated.

Many corporations and public organizations have attempted various programs to capture procurement savings, yet the inherent challenges of getting savings across the organization remain. Most procurement executive are still trying to wrestle procurement to the ground, and CEOs are still waiting for the potential benefits of procurement to reach the bottom line, let alone capture the innovation and value locked up in their key supplier relationships.

The question is not whether a company should improve its business through more effective procurement operations, but rather how to unlock the sizeable value potential within its reach. This point of view, targeted to chief procurement officers (CPOs), addresses the barriers to achieving the full potential of procurement, as well as how to transform their approach to realize the full benefits by gaining better control, resources and focus. It also discusses what to consider in the "make vs. buy" transformation decision and how to go about it.

Given the size of the prize, why have so many organizations struggled to achieve it? The answer rests in a number of interrelated challenges. For starters, in most companies, CPOs lack control over autonomous buying decisions across the enterprise. In such cases, individual business units, geographic units, and functional units (e.g., marketing, legal) resist initiatives to centrally "influence" procurement through a best practice, shared service organization.

Arguably, executive management could mandate enterprise-wide commitments to best practice procurement management, but this is by far the exception to the laissez faire rule. The lack of executive support reflects a chicken-and-egg paradox faced by many organizations. Lacking strong executive sponsorship—and the investment commitments that go with it—many procurement departments have to make do with outdated technology and tools, as well as inadequate sourcing and buying expertise on a category-specific basis.

Qualified procurement service providers offer: immediate access to category specific knowledge and experience across multiple spend categories; the ability to plug into leading-edge procurement technology to promote enterprise-wide compliance; higher user satisfaction and improved vendor management; and the opportunity to exploit highly efficient global operations centers to lower baseline costs, improve efficiency and enhance management visibility and control.

Building the capabilities listed above is challenging for any one enterprise to manage or afford on its own, which is precisely why it makes sense to consider exploiting the knowledge and experience of a qualified multi-client service provider whose sole focus is on building and continuously improving world class procurement expertise on a global scale.

• Get better control—Rather than becoming less important, procurement leaders take on a more strategic role in the company that outsources. While this may seem counter to corporate culture, it works this way because, by outsourcing with the right provider, the organization has access to the resources and investment required to realize the vision.

• Get better resources—As part of this expanded role and influence, the CPO can exploit vastly better tools and capabilities to serve the corporation, which previously were unavailable due to their cost or the skill-sets required to develop and maintain them. The right provider brings key personnel with deep category management expertise and the right relationships to leverage.

• Get better focus—By outsourcing, companies can migrate from simply managing administrative inputs to driving real business outcomes. This means that external procurement service providers manage (and are contractually responsible for) critical but non-core activities such as: order processing, category management, vendor selection, contract negotiation, accounts payable, and travel & expense reporting.

• Get real change—We all know that nobody likes change. But when it's necessary, companies can actually transform procurement operations faster and more reliably by using an external procurement service provider—a "change agent"—to drive lasting improvements in procurement. Outsourcing can be used as a "forcing function" to accelerate behavioral change across the enterprise.

There is no one-size-fits-all approach to how companies allocate their resources to drive results. Outsourcing is neither a fad, nor a panacea, and almost all major organizations outsource at least parts of one or more major business processes today—procurement among them. IDC estimates that procurement outsourcing will grow at a 34 percent compounded annual growth rate among Fortune 1000 companies over the next five years.