Business Platforms – BPO meets Technology: Procurement outsourcing: Don't let leakage become flood

Procurement outsourcing has registered excellent traction and faster adoptions over last year with high growth thereby helped purchasing organizations achieve quick savings in a tough economic environment. While purchasing organizations continue to be gung-ho about reducing their operation cost riding on labor cost arbitrage, most of the organizations are likely to miss the bigger saving opportunity, ‘procurement outsourcing’ can offer through effective spend management. Once the ongoing economic turbulence will subside, organization will soon realize that in a moment of frenzy they have been able to muster only a small pie of bigger savings opportunity and are locked in a rigid structure which will offer them very less room for effective spend management. Unless organizations invest beforehand in underlying technology and process it‘s not possible for them to reap full benefit of procurement outsourcing.

Attempting procurement outsourcing without considering any change in technology and process may deliver short term quick savings but the innate historical inefficiency due to absence of seamless end-to-end procurement processes will offset this 'quick' savings over next 1-2 years itself due to unavoidable spend leakage. Most of the service provider have already learned a hard lesson that procurement outsourcing with focus on labor arbitrage alone is not sustainable in a long term, as was evident couple of years back when ‘currency appreciation/fluctuation’ eroded into perceived outsourcing savings making BPO model less attractive. This may again haunt organizations anytime again in this volatile economy and will again challenge business decision based solely on labor cost arbitrage.

Organizations need to review, reengineer, remodel and enable 'process' and 'technology' while embarking procurement outsourcing for sustainable savings. In order to achive this organizations should also carefully review platform BPO model which would help them solve above problem upfront without going through multi-year, mult-million dollar 'process' and 'technology' renovation.