Strategic Sourcing: From Local to Enterprise-wide Services Procurement
Many large companies still procure services at the local level, believing that this spend category is best managed and measured there. Yet this approach forecloses on some important opportunities. Organizations that have successfully moved from a local to an enterprise-wide approach to services procurement report savings of 15 to 20 percent—plus key operational improvements. The Strategic Sourcing approach described here can help guide that transition.
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Just as the role of services in the national economy has expanded significantly in recent years (from 67 percent of total private-sector output in 1980 to 80 percent in 20061), the percentage of companies’ total spending on services has increased dramatically. The 1990s saw a significant increase in services outsourcing—first of IT services and over time extended to other “non-core” services, such as logistics, human resources, accounting, and recruiting. In addition, companies increasingly are turning to outside providers for certain specialized services when they need a particular type of expertise.
Services pose a unique procurement challenge: they are harder to define explicitly and quality is best assessed by the end-user. For these reasons, many organizations tend to procure services locally, rather than by following an enterprise-wide strategy. Yet a local procurement strategy, while it may appear easier to pursue, may not yield optimal results for the organization. Customers may become tied to a particular incumbent supplier and may even specify requirements that only that incumbent can meet. Restoring objectivity to the procurement process is one benefit of developing an enterprise-wide approach.
In addition, a more detailed analysis of spending patterns in this area typically reveals a significant savings opportunity. In today’s economic climate, companies are challenged to find more cost-effective ways of doing business. Our experience across numerous industries and organizations suggests an improvement opportunity of up to 15-20 percent reduction in spending on a given services spending category from an enterprise-wide approach. Unlike other changes in business practices, reductions in spending have a direct impact on the bottom line—and may make the difference in determining whether or not a company can survive.
This article will provide an overview of the key processes used to successfully move an organization from a local to an enterprise-wide services procurement strategy. It includes several examples and case studies to put context around the effort. Finally, we offer a number of “steps to success” to get the enterprise-service procurement initiative moving along the right path.
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