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Table of Contents

You’ve Outsourced Procurement. Now What?

How Offshoring Can Create Jobs For Americans

India Sees Performance-Linked Salary Hikes for Outsourcing Staffers in 2005

Nicaragua Wants to Become A Nearshore Hot Spot

Should Commercial Software Companies Create A Captive Or Outsource?

Quantifying the ROI of Human Capital

An Ounce of Prevention: The Importance of Testing

Mellon Treasury Insights

"We outsourced procurement to X, so we don't need an organization or people any more!"

Until recently, the traditional focus of companies that outsourced procurement was on the value assessment and vendor selection phases. Today more companies are recognizing the importance of the transition phase. In my opinion it is just as important. The hard work starts right after signing the contract; the responsibility of corporate procurement for success never ceases.

A whole set of activities needs to take place the moment the outsourcing provider shows up with the sourcing and transition teams. These programs provide the basis for a successful outsourcing transaction that will allow the buyer to achieve the projected savings, operational benefits, and efficiencies that made the business case positive.

Management has high expectations and anticipates results for such a significant investment. This requires hard and continuous work from day one. Here's how to do it in eight crucial steps:

1. Make resources available.

At the outset, buyers must make resources at the management and staff level available to work with the procurement provider to shift the procurement process and systems from the buyer to the provider.

2. Verify the external spend.

Completing a comprehensive baseline analysis of spend, knowledge, processes, procurement systems, and organizational linkages prior to starting the value analysis and vendor selection becomes one of the most important requisites for success.

To make sure you are thorough, list the spend by:

• Categories
• Corporate users
• Business unit
• User groups

Include sums you spend with each vendor in each of these categories, including the types of products and services procured.

Profile current contracts, vendors, and business relationships. This is a good time to verify all contracts including their terms and conditions, renewal dates, and service level agreements.

3. Map current procurement processes and systems.

This includes understanding current procurement practices, user needs, service level requirements, specifications, and communications. Map requisitioning, approval, purchase order and electronic procurement processes for key products and services so everyone understands the process. The goal is to understand the gaps and the changes needed to operate at best-practices enterprise-level procurement.

4. Build an organization that provides sustained procurement support.

This organization, which can be virtual, manages the contractual obligation with the provider. Its job includes monitoring program milestones, deliverables, savings results, and payment schedules. It also manages all procurement financials and operational performance; charts realized savings; points out process improvements; and keeps track of service levels, benchmarks, and scorecards.

In addition, this organization manages the key vendor relationships and contracts including a contract database system with terms, conditions, and renewal dates etc. It also provides "one-stop" customer service to internal users and external vendors. The organization is the liaison between corporate and the business unit users, the outsourcing provider, and key vendors.

The goal of this retained organization is to build firm-wide consensus and participation. The buyer can not delegate the responsibility of providing comprehensive and sustained procurement services for the corporation to the provider.

5. Retain high-level expertise in sourcing and procurement of the major categories.

These include IT, advertising and promotion, print, professional services, etc. Buyers need this expertise to effectively interact with external vendors as well as the outsourcing provider. Their knowledge is necessary to generate the targeted savings and efficiencies.

6. Create a governance team.

Buyers need an effective governance team to manage the outsourcing relationship as well as the executive, operations, and delivery teams. The governance team provides strategic and program direction and manages resources and programs. These tasks are crucial to the success of the outsourcing.

"Our governance model is working because we have broad business unit participation."

The governance team also has to put together a communications program to:

• Create awareness of the outsourcer's new capabilities
• Train users in the new procurement processes
• Communicate successes and benefits across the enterprise

7. Plan proactively.

Do not underestimate the degree of organizational disruption and change management the company can digest. Buyers often severely underestimate the difficulty and time required to gather data and gain access to key user and functional groups.

Joint transition planning needs to start long before the kick-off. Resource planning and availability, particularly in the presence of other parallel programs, becomes vital. Scrutinize carefully the provider's time tables and results projections. These can be way off if the provider did not have the comprehensive data needed to do the job properly. Assess how these projections will impact the organization.

8. Several months into an outsourcing relationship, reflect on your first impressions and experiences.

Assess the degree of senior management's commitment to the program. Did they provide dedicated resources to key efforts? How effective is the governance model? Does the governance team have the flexibility to adjust to initial bottlenecks that always arise? What have been the experiences with the provider?

Buyers and suppliers who follow this footprint can achieve sustained world-class, enterprise-level procurement services at the lowest cost and highest efficiency and still attain the highest possible customer/user satisfaction.

Publish Date: April 2005

Copyright © 2005 - Everest Partners, L.P.

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