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What is valued more in procurement outsourcing: category control or savings?.

OutsourcingBlog

Procurement outsourcing is subject to a lot of talk, but few are willing to take the plunge. Recent studies show divided attitudes within the profession.

 

We find in Procurement Leaders’ surveys that all levels of procurement (from CPOs to category managers) there are strong intentions to outsource more spend. Specifically, we see this in relation to indirect categories, which are considered by many as a ’non-core’ and even a distraction to the main business of the organisation.

 

In our recently published 2014 CPO Planning Guide, we found that 40% of respondents aimed to increase the external provision of indirect categories. For direct categories, this was nearly halved to 22%.

 

Indeed, when the procurement process itself subject to outsourcing, the picture is even less clear.

A survey recently completed by Xchanging, a business process service provider, recently conducted a survey into the attitudes of procurement professionals found a mixed appetite for outsourcing. Their study found that of those that currently do not outsource any of their sourcing operations, 93% are content with the status quo. For those that do engage in procurement outsourcing, 90% aim to increase its use.

 

Anxiety over loss of control of direct categories, which are core to business, seems similar to CPOs’ reticence to outsource sourcing. Xchanging found that the main barrier to procurement outsourcing was the desire to build up purchasing’s capabilities. Second to this, however, was the fear of “loss of control and know-how”.

 

Is this outweighed by potential savings? It is certainly seemed hard to put a figure on this. The oft-quoted saving for third-party provision is about 10%. Is this worth the potential loss of knowledge and the direct control of a category?

 

CPOs are already responding to this question with a more nuanced response relating the split between direct and indirect categories. Will we see procurement professionals in the future look to outsource more direct procurement in the future if they are currently satisfied with the externalisation of indirect spend?

 

Members can access the 2014 CPO Planning Guide from following this link here.

Jon Webb
Posted by Jon Webb