A new supply management emerges

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Outsourcing projects.jpgAfter a big wave of procurement outsourcing, a different animal will be left standing.

This is the consensus reached in a report ‘VISION 2020: Ideas for Procurement in 2020 by Industry-Leading Procurement Executives’, the outcome of a dialogue between Ariba and leading procurement practitioners and influencers.

Outsourcing explodes

Many current procurement and sourcing activities — the ones that do not get redistributed to internal end users of goods and services — will be outsourced by the year 2020, says the report.

John Campi, former CPO with U.S. organisations DuPont, Chrysler and The Home Depot, puts it quite simply: “If it’s not critical, it will go to third parties.”

Traditional procurement activities that the executives envision outsourcing by 2020 include:
• Virtually all transactions processing including POs, invoices, and payments.
• All noncritical/nonstrategic spend category management, including supplier catalogue, contract management and sourcing event execution.
• Most data gathering, structuring, storing, analysis and reporting activities, be they for spend analysis, external market intelligence, risk intelligence, supplier performance management, and so forth.

Donald Ferguson, Head of Procurement Operational Excellence at AstraZeneca, suggests that, “by 2020, procurement of the more traditional commodity, leverage-type categories, will exit the company and be sourced by people who specialize in sourcing them. The skills that go outside will be around creation of standards, specifications, performance management, and cost reduction. The skills we retain will be more focused around strategic influence and business acumen.”

“We are spending a great deal of time today looking at what is core and not core for us,” agrees the procurement executive for a major U.S. insurance company. “We have seen this happening in the last five years, but I think the trend is going to get much bigger in the coming five years.”

The first stage, this procurement leader says, will be companies determining what they can move outside and finding partners on whom they can rely for service support. But, as procurement outsourcing matures, he expects to see a second stage of development where companies begin to innovate within outsourcing relationships, exploring creative ways in which their partnerships can drive competitive performance improvements and business success.

As Dawn Evans, President and CEO of the Sourcing Interests Group (SIG), sees it, “If we can outsource transactional procurement and bring in more strategic thinkers – people who are not afraid to drive innovation – then we can build a mindset that is dramatically different than the one we have now.”

Service providers excel

With fast-growing demand for procurement outsourcing, both the quantity and quality of third-party procurement services will increase dramatically by 2020. Their performance in many spend categories will surpass what can be done in house, notes the report.

“Procurement is core in that we need to have the right strategies,” says the procurement executive for a major U.S. insurance company. “But it is not core to the extent that we can leverage service providers who have developed exponentially better capabilities than we have in particular commodities or spend categories because they source them on a more regular and broader basis than we will ever do internally.

“We have seen this developing for a number of years but, if you look back, you see the service providers really fighting with their offerings, building their business models, tying in the technology, and so forth.

“Today, we are seeing service providers getting to the point where they do things better than we can do them. Looking out 10 years, I see us moving first to leveraging that expertise and excellence and then to developing relationships with the service providers that put them completely in-synch with our business models. We will extract more and more value from outsourcing relationships as the decade progresses.”

Another factor in play is that high-performance enterprise procurement organisations – those that began their strategic transformations 10 or 15 years ago and have attained high levels of spend management maturity – will continue to spin out discrete business units that offer procurement and sourcing services often geared to specialized segments of industry.

This is already happening in U.S. sectors of healthcare, hospitality, and food services. For example, Ann Oka, Chief Procurement Officer with Sodexo, says: “Procurement services account for half [of Sodexo’s U.S.] volume today. “We do not specialize in procuring highly engineered items, so we would not offer our services to manufacturers for their direct materials. We do, however, offer procurement services to firms within our industry or in industry segments that are closely related to ours, for example, lodging, leisure, camps, and some multi-unit restaurant chains.”

However, Evans' closing remarks are that a "huge amount of education for corporate leaders [is necessary] to understand the best uses of supply management and why a majority of the tactical procurement and sourcing work should be outsourced."

The information in this article was sourced from the report ‘VISION 2020 Ideas for Procurement in 2020 by Industry-Leading Procurement Executives’.

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