The outsourcing of transactional procurement has traditionally focused on using a third party organization to manage the low-value/high-volume transactions. There are some key points to consider when implementing a procurement outsourcing program to ensure its success.
- Establish that your chosen service provider has the capacity, skills and experience to manage the data and technology integration issues. I.T. and project management expertise combined with an understanding of purchasing processes is recommended.
- Involve other functional areas in your business in the planning stages. A cross-functional team that includes HR, IT, Legal and Finance representatives can help build the business case and ensure that there is no disconnect later.
- Understand the impact of signing an outsource contract on your current employees and have a detailed plan that manages HR communications. Negotiate with the service provider to take over key staff and ensure that any potential industrial relations issues are faced in advance.
- Outsourcing of transactional procurement requires a detailed transition and change management plan that addresses service delivery and the roles and responsibilities of both the client and the outsource service provider during the implementation.
- As part of the contract negotiations when outsourcing transactional procurement, a service level agreement (SLA) must be agreed and a governance structure set up to manage and control compliance, by both parties, to the agreement. The process should include remedies in case of non-delivery and incentives for innovation.
- SLA measurements can include reduction in the number of suppliers, cost savings, compliance to contracts, and category management. Minimize risk by including measures relating to turnaround times, delivery schedules, quantity and quality of data, error rates etc.
- Senior executives for each party to the agreement should constitute a review board to provide a top level view of the relationship. This also provides an escalation path so that issues are resolved quickly and to the satisfaction of both parties.
Outsourcing of transactional procurement is leading to an extension of procurement outsourcing into other areas such as spend analysis and measurement, supplier selection, contract management and e-procurement services.
As more buyers gain familiarity with this form of outsourcing, we expect to see continued robust growth in this sector as service providers continue to develop their service offerings.
Next week’s tip deals with supplier quality. The costs of not managing supplier quality can impact on your company’s bottom line.