Recently we had an interesting discussion with CPO of one of the leading retailer in Europe. Like it happens in most of the outsourcing initiative the Procurement was part of Finance & Accounts outsourcing initiative, which was a big daddy in terms of contemplating overall direction and strategy. While CPO was clear that he needs to look outsource indirect procurement only and was well aware of apparent challenges like fragmented landscape, broken processes, maverick buying and extremely low spend visibility. And this is compounded by the fact that his company has grown rapidly over last few years riding on extremely aggressive acquisitions which has resulted into procurement gasping for basic stuff like standardized processes, enterprise wide contract & compliance, adequate sourcing team etc. Clearly the potential savings opportunity was immense but he also wnated first to put in place a common and centralized structure & processes to achieve the savings. This requirement of additional investment in procurement was in direct conflict with his peer team who wants to create the business case on a reduced TCO (Total Cost of Operation) to reap immediate benefit from outsourcing.
While there's considerable shift during last few years in terms of Procurement gained better strategic focus due its ability to influence bottom line directly, there's still a mindset challenge - whether to transform first and transfer later or vice versa. It is a known fact that once the processes are outsourced, though the incremented process efficiency is attained it will not address the basic issue of 'spend control'. Also the latter approach - 'transfer first and transform later' typically doesn't go down very well with procurement because of the sheer fact that - internal change management due to historic fragmented & decentralized buying habit is almost impossible to address once the processes are outsourced in an As-Is form. It is necessary to have basic tools; framework and processes in place before outsourcing the procurement processes and so it's worthwhile to evaluate additional investment before you outsource. In today's capital starved economic environment when organizations are striving and acting at a rapid pace towards reduced TCO any new investment in processes and technology needs to be substantiated with a strong business case, fast ROI and models like managed services necessarily needs to be part of organization vision pack to unlock huge potential savings through effective sourcing & procurement.
