The Key Trends in Sourcing Impacting Procurement Today

The global sourcing market is changing rapidly around us. Just when you've decided the scope of services you want to outsource, and made a decision on which provider(s) will partner you, the market brings up another trend or announcement to throw your plans off balance. Despite the benefits that these changes bring, for those that are considering or managing an outsourcing agreement - as well as doing their day job - this continued evolution can certainly be a headache! By David Downs, Principal Consultant at Morgan Chambers.

Over the next six months the outsourcing knowledge group will be exploring key trends that all Sourcing and Procurement managers should be aware of in today's climate. Drawing from industry figureheads and individuals involved in outsourcing from buyer and supplier sides, the group will explore the impact that some of these changes will have and provide clear guidance, advice and discussion on how to address these challenges head on. In order to support this group, Morgan Chambers has identified some of the trends happening in the market that are impacting the way we source goods and services.

So what are the key trends in the Sourcing industry for 2007/8?

Increased level of multi-sourcing
Many industry commentators have correctly identified the decline of the mega-deal. This trend started a couple of years ago in the predominately ICT focused large contracts. Over the past six to twelve months we've seen an increase in the level of multi-sourcing which is affecting new contracts and contracts renewals. In new contracts the market has learnt the benefit of niche players to add specific value. In renewals the old 'monolithic empires' of single supply are being dismantled in favour of value-add from a range of smaller organisations. The advantages far exceed the increased governance cost and complexity. The fast maturing BPO (vertical and horizontal) market has adopted this trend with large complex deals only going to a single supplier where there is either a lack of competent market supply or high levels of transformation. The choice of 'best and big enough' is certainly the trend on the increase and seems here for the foreseeable future.

Greater significance given to Governance
Governance has long been ignored, under-invested in, or dismissed as 'fluffy'. The skills and disciplines around good governance are now being recognised as the key to sustainable relationships and the benefit they bring. This must be viewed as a key step in the maturity of both the discipline of sourcing and the way in which corporations manage important service relationships. For too long the processes of governance and supplier management have been fragmented across organisations with those managing this receiving little or no formal training - any wonder then that so many large service relationships fail to meet the benefit expectations they start out with. Governance is as much about approach, attitude and mind-set as process, reporting and control. The market has woken up to absolute need for greater professionalism around key control processes; this is recognised as a key skill today and will increasingly be viewed as an essential organisational competence.

Continued rise of Global Sourcing
This is the label and concept sweeping away 'offshore'. Globalisation of service provision is coming into the reach of more and more companies, old barriers are being broken down and Europe is now embracing global service provision. Primarily driven by the CFO but also procurement and the business unit directors, for almost all it is a question of 'when' and 'how much' rather than 'if'. The challenges remain significant for organisations not accustomed to conducting business with very different cultures or in far flung geographies; however the benefits for the foreseeable future are worth the work and the intrinsic risk. The world has recognised that global economics has worked for many years in manufacturing and can work equally well in services. This year will see the continuation of economic globalisation and governments learning that they have to work with it not against it to stay ahead.

Consolidation in the IT supplier market
The consolidation taking place within the outsourcing space is significant and driven by the rise of niche and offshore providers, plus 'investor power'. The players that have dominated in the past are under renewed pressure from all sides. Niche players from all quarters are moving in. Offshore companies are changing their approach and market image and 'Money' is having an inordinate impact when wielded by the PE community. The market has seen the first skirmishes and a round of CEO departures is underway - the immediate future will see much more activity that will move and shape the service industry in new ways. Only last week, Infosys and Capgemini hit the press with rumours that the Indian giant will take over this European provider.

Concentration on Value, 'short termism' will be a thing of the past?
The sourcing and outsourcing industry has learnt to its cost that the hard work starts once the contract is finished. While this is commonly understood the implications for deal-making are less well appreciated. Today we see the impact of the short-term objective focus of getting the best transaction executed and assuming that sustainability is the supplier's issue. The trend for now and the future is concentrating on long-term value and evaluating all goals and measures to ensure delivery is absolutely focused on business needs and that the context of any deal is consistent with the nature of the services being delivered.

The role of procurement?
The role of procurement is developing into the key, multi-disciplined, and broadly capable function that it always should have been. Many organisations are realising that strategic procurement of goods and services can make or break the competitive positioning in their own markets and are therefore more willing than ever to listen and take heed. The challenge for procurement professionals is to continue doing the day job whilst also getting involved in large and demanding projects, as well as staying current in knowledge and experience in an ever accelerating environment of change.

The next twelve to eighteen months are destined to be an exciting, yet challenging time for all involved in the sourcing of services. However, by exploring these issues head on and by drawing upon execs from all across Europe and beyond, there will certainly be support along the way.

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