Analysis: BP outsources IT procurement

If 2009 was the year that saw a wave of procurement outsourcing, it was a relatively small wave. But despite this, the new decade at list started with a bang as BP handed the management of its IT vendors to Computacenter which, short of heralding another rush, does show that huge organisations are confident they can get certain aspects of procurement outsourcing right.

Mike Norris, chief executive at Computacenter commented on the BP deal, saying, "This is BP saying that it wants to buy all its IT through the channel. It is a powerful message."

That message is indeed bold and more revealing than it first seems: for reasons including and extending beyond cost, the energy giant felt it could trust an external provider to manage its IT spend. In consolidating its immediate dealings with suppliers and driving complexity from its supply chain it is presenting the move as a straightforward decision.

And while it is unlikely to be anything but straightforward, IT procurement is an obvious choice to be handled externally.

Stewart Buchanan, research director in Gartner's IT procurement management team, says, "We're going to see a lot more of this in the IT space. IT infrastructures can be so complex that just having one person or one team responsible for organising the buying for every particular area won't always be effective." The expertise provided by Computacenter in Europe and CompuCom in the US can certainly benefit BP's IT buying while drastically cutting the number of suppliers it deals with 540 to just two.

Compliance, which is a notable issue for IT spend, is an area with the potential to trip up procurement procedures. This makes it an even better candidate to be handled by an external business with the right skills to navigate the minefield.

Recent news that global corporations are making a mess of their telecoms spend, which often falls under the jurisdiction of the CIO, highlights just how far most companies are from extracting the maximum efficiency from this area of indirect purchasing. The fact the research in question highlighted an annual overall cost of £12bn should be enough to get procurement interested.

Mike Newlove, COO of Hudson & Yorke who commissioned the research by Forrester Consulting, says, "Procurement teams don't always look externally, but equally they don't always understand the tech side of things and that can explain why sometimes they're not satisfied with the outcomes."

"The strategy can end up being patched together, which is where the money is lost. The figure the research came up with is imminently recoverable through better sourcing, better understanding and more awareness on how to implement the right sourcing procedure."

By placing the responsibility of using very industry-specific procurement expertise on a boutique company that can be more streamlined in its approach, an organisation can reduce these burdensome costs and get a team of experts in to correct their mistakes.

Not so, according to Gartner's Buchanan. "It requires a level of sophistication and maturity," he says. "If an organisation isn't very good at buying themselves, there are very few reasons to believe that outsourcing the problem will be the answer."

On the cost side, it was reported that the $150m five-year contract BP signed with Computacenter is set to save the company £20m over the life of the contract. BP then is a prime candidate for this kind of agreement. Having announced its intentions to make substantial savings last year following the impact of falling oil prices, it also maintained an agenda of improving its use of IT throughout the business.

"When you work out the time and effort of buying and managing contracts - it is substantial," says Buchanan. "Just using one aggregator is going to reduce the cost of acquisitions. If there are lots of vendors in the supply chain it's the most efficient, effective and controlled way of managing IT spend. Having said that, there are plenty of organisations for whom that won't work."

The failures of these agreements tend to hinge on one or more of a handful of traits.

The first is balance. Organisations looking to outsource spend to a much larger company are already at a disadvantage and run the risk of not being able to build the procurement function in house if the company grows. The opposite is also true; seeking value in using smaller scale resellers without a capacity that corresponds to the size of the client is a clear recipe for trouble.

Another is approaching the process with realistic goals. As Buchanan points out:,"If either party is not ready, then they should accept that. It's a process that's much harder to get right than wrong, though it doesn't often seem it."

"Outsourcing procurement work means procurement has to look at the buyer-vendor relationship in a different way. You can't have the control so it's crucial that rather than handing over the reins you are working with the resellers to make sure that they are following the objectives you agree upon."

Ultimately, it comes down to whether one company can trust another. From a risk management perspective, whether there is one reseller managing a complex supply chain or hundreds of vendors to deal with, the potential hazards are there.

Given that, in the IT space at least, most suppliers are now based in Asia and have similar supply chains, the relationship between buyer and vendor can reach levels of complexity which consistently prevent the business from driving value and innovation from their suppliers.

Looking further afield, with supply chain consolidation happening every day there is no clear line on where procurement outsourcing can't make its mark.

Strategic sourcing, if you believe the hype, can be the strongest candidate for outsourcing. EquaTerra's managing director of procurement advisory services Rick Bertheaud says, "Organisations that include strategic sourcing of indirect goods and services in their procurement outsourcing scope are achieving double-digit savings on managed spend."

This sounds impressive. Still, many of the issues remain the same through any part of the procurement role. Buchanan sums it up as being "an issue of trust." Which, from any angle, is surely the first concern.

Procurement Tag - Procurement Outsourcing