[PROCUREMENT OUTSOURCING] Procurement Outsourcing: On the Rise, Flush with DealsSourabh Chandra Pushp
Procurement outsourcing is proving its value as a strategic piece of services. The procurement function would entail more complex categories of products and is focused on creating long term, sustainable relationships with global suppliers.
“Buying patterns are changing,” says Stan Lepeak, Global Research Team-KPMG. Now the next wave of innovation — cloud computing— is redefining concept of outsourcing by offering “as-a-service” capabilities ranging from infrastructure to platform to applications. Most companies have dabbled with centralized and decentralized procurement over the last decade and are now settling into a hybrid structure determined by the profile of category. Companies now focus on managing spend at the level that maximizes efficiency and effectiveness.Capgemini and ICG Commerce both led the way for PO deals with bagging three deals each, Capgemini sourced multi-year agreement with Kraft Foods to provide procurement services for its North American operations. Under its second deal Capgemini will manage Novozymes procurement services including Procure-to-Pay (P2P) on demand services and applications. Capgemini bagged its third deal with Hilti Corporation in a five-year contract. Capgemini will provide strategic sourcing and spend management for a wide range of corporate services.
ICG Commerce bagged three deals with Brinker International, a multi-year agreement with DICE to provide sourcing management services and agreement with Elizabeth Arden to provide strategic sourcing and category management.
Xchanging bagged three-year agreement with SELEX Galileo to manage an annual spend of £17 million on behalf of SELEX Galileo’s UK business.
In its second deal Xchanging underwent five-year agreement with CHEP to manage £75 million of spend and integrate and standardize procurement processes for its business across UK, France, Germany, and Spain.
With the increased focus on cost and compliance, the procurement function has been elevated to a strategic component of value creation and a rich source of competitive advantage. Not surprisingly whatever the strategic imperatives, cost is still king and hence cost reduction is still the over-riding priority for organizations. The reduction of working capital was seen as the major requirement for procurement at the current time. Apart from the above mentioned drivers for PO, managing instability in commodity prices and ensuring supply chain stability are also worth mentioning.
IT service providers are leading the way when it comes to the supplier space. Majority are currently outsourcing their procurement to IT service providers, which once again illustrates how reliant organizations are on outside expertise in the technology marketplace. Of those companies already engaged in some PO activity, eProcurement systems management turned out to be the most commonly outsourced procurement function. When it comes to selecting an outsourcing partner, proven capability ranked highest in terms of importance and spend category expertise was the second-most important criterion that companies pay attention to as they evaluate suppliers.
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