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Procurement Outsourcing

– Managing Indirect Spend


Table of contents

1 Comment

2 Getting Spend under Control

3 Management Summary

4–5 BPO – the answer to your


indirect spend problems?

6 Motivate your stakeholders

7–19 Outsourcing indirect spend


– new landscape, new drivers?
Comment | Managing Indirect Spend

Comment
David Rae
Editor – Procurement Leaders

Indirect spend is a notoriously difficult area


for CPOs to control. With the average large
organisation employing thousands of staff
with the capability to approve external
spend on non-production items it soon
becomes incredibly complex.

Because of this, it also offers huge


potential for savings through improved
demand management, consolidated
spend and improved governance.

CPOs must get involved and influence


buying behaviour across the entire
organisation, and in every category, and
they must apply the same amount of
rigour to indirect categories as they do
to direct materials. And with the gaze of
David Rae CFOs firmly set on achieving yet more
Procurement Leaders savings, it becomes even more important.

This research shows that, while there is still


much work to be done, CPOs are tackling
the area.

One way of doing so, is to engage with an


outsourcing partner which can often bring
category expertise, greater buying power
and improved compliance to an organisa-
tion’s indirect spend categories. And, while
it continues to struggle to match the likes
of HR and finance in terms of uptake, there
are signs that procurement outsourcing is
really taking off.

However, while outsourcing is certainly a


viable solution, the most important issue is
to focus on the challenge itself.

After all, what might work for one organi-


sation is not certain to work for the next.

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 1


Managing Indirect Spend | Getting Spend under Control

Getting Spend under Control


Leif Bohlin
Vice President – Capgemini Procurement Services

Managing indirect spend is complex and


labour intensive and includes the sourcing
of complex goods and services such as
IT, professional services, facilities manage-
ment and marketing, among others.

However, there is still a major difference


between those companies that have been
able to harness their spend and those
that have seen years of costs slip away.
According to the German Association
of Materials Management, Purchasing
and Logistics (BME), the average cost
per order is €120, with some companies
topping €200 per order, while others
are able to complete the purchase for
less than €10 showing clear room for
improvement at many organisations.
Leif Bohlin
Capgemini Procurement Services We at Capgemini Procurement Services
believe it is hugely important to get indirect
spend under control, either through a
centralised process within a shared service
centre, or through an outsourcing initiative.

From this, we have developed some


key ideas for how a comprehensive
approach to indirect spend can be
developed. We hope they will serve as a
useful source of inspiration for your future
indirect purchasing agenda. Feel free
to contact either myself, or one of your
local Capgemini Procurement Services
representatives, if you would like to
discuss how these insights can guide your
organisation.

2 Capgemini & Procurement Leaders Outsourcing Research – All rights reserved


Management Summary | Managing Indirect Spend

Management Summary

In mid 2010, Procurement Leaders involved in the negotiation of outsourcing


and Capgemini Procurement Services deals. There is also active involvement in
conducted joint research to identify the contract management and supplier
most important drivers in indirect spend selection (72% and 71% respectively). Also What is your perception of
and the outsourcing of indirect spend. worthy of note is the use of intelligence procurement outsourcing?
The study was designed to understand gathering and market intelligence,
the relationship between strategy and practiced by 55% of respondents.
risk management, which, as our findings
showed, proved to be strong. In terms of specific categories of indirect
spend, 50% of respondents indicated that
Managing Indirect spend is complex. facilities is high on their priority list, which
Many different stakeholders, a huge variety is slightly ahead of IT and telecoms
of processes, thousands of suppliers and (49%) and software and IT professional
various demands must be managed. This services (45%).
is reflected in the split of the procure-
ment department’s staff – around half the Procurement departments seem to become
relevant headcount is dedicated to indirect more open to outsource their own work.
spend, yet it covers only 5 to 15% of an 12% are currently out­sourcing parts of
organization’s spend. procurement. The most commonly out-
sourced functions are support services like 1 – Positive 36.97%
As a result, automation is the logical eProcurement systems manage­ment; 2 – Negative 17.65%
consequence to get more control of the 51% are currently doing so. The second-
processes and it is of no surprise that most outsourced function is procurement 3 – No opinion 45.38%
Supplier Relationship Management transaction processing. Among those
(SRM) is still on the rise on the corporate who outsource procurement, nearly half
agenda – 70% of those questioned see (44%) is currently choosing IT service
SRM as a focus area. providers, again highlighting the reliance on
technology. Combined, these findings might
Gaining more knowledge about spend and reflect that procurement does not have effi-
suppliers supports another big trend of cient technology in place to efficiently handle The overall opinion about procurement
the survey – improving spend visibility these functions on its own. outsourcing reveals a positive outlook:
(52%), which reinforces the need to better more than one-third (37%) expressed
collaborate with suppliers in order to In terms of adoption, 24% indicated that a positive opinion with less than half of
achieve greater efficiency. outsourcing was a future consideration, that (18%) a negative opinion. It shows
but 49% believe that they will see an that procurement outsourcing is on the
The top three indirect spend areas under uptake in the next year. When asked right path, but still has some way to go
procurement’s control are office services about the specific timelines, procurement to establish itself in the mainstream of
and supplies (92%), travel (84%) and IT & executives err on the side of caution with outsourced business functions.
telecoms (83%). For the last two categories 47% planning to outsource within 1 to 2
the picture has changed dramatically during years and 17% looking at 3 to 5 years.
the last 10 years, as these used to be under
the jurisdiction of department managers. Procurement executives look for proven
capability (86%) and spend category
The other big topic on procurement’s expertise (84%), when selecting out­
agenda is outsourcing. In the past, sourcing providers and the biggest
outsourcing deals were done without the concern are unclear fee structures (56%),
involvement of procurement and relied followed by infrastructure and capacity to
on third parties to prepare the deals. But, deliver (55%), the latter of which highlights
according to the results of the survey, 87% the recurring theme of a lack of trust in
of procurement professionals claim to be suppliers.

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 3


Managing Indirect Spend | TOPIC

BPO – the answer to your


indirect spend problems?
Pontus Björnsson
Head of Solutions & Marketing – Capgemini Procurement Services

The business process outsourcing (BPO) reversed: companies capitalize on the


industry is expanding even post downturn, “what is important part”. The outsourc-
due to the benefits it offers to companies in ing provider and the customer agree on
terms of compliance and the ability to focus targets, which they pursue jointly.
on core operations. Today not only non-core
work is outsourced, but also more value- As soon as a company decides to out-
added work, such as procurement and source its indirect spend, it must consider
logistics, knowledge and legal processes. two major areas –strategic and operational
procurement services.
According to Capgemini Procurement
Services, outsourcing is only possible to Strategic procurement services
do success­fully if you have the right focus. Strategic procurement is often forgotten in
To them, the right focus is capitalizing on the indirect procurement space, which is
“what is important”, while “how it is done” often seen as non-strategic and complex
is secondary. due to the nature of spend patterns and
business impact. Consequently, they are
In outsourcing mod- often managed alongside
els following a “how other, more strategic,
Pontus Björnsson approach” every task is ”The motives for this categories or, even
Capgemini Procurement Services defined in a so-called
“statement of work”. In
approach are easy to worse, are left unman-
aged.
this document, all tasks, understand: both the
processes, and func- But strategic procure-
tions are accounted for, customer and the out­ ment techniques, which
in fact, each and every maximise the value of
task carries a price tag,
sourcing provider are category management
which is invoiced by the
outsourcing provider.
aiming for control.” and sourcing, boosts
savings by leveraging
The motives for this global commodity
approach are easy to understand: both the expertise and uses contracting tools and
customer and the outsourcing provider are process efficiency should be employed in
aiming for control. While the outsourcing indirects.
provider aims to invoice every completed
task, the customer is keen to ensure that Operational procurement services are
they do not get overbilled. used to industrialise tactical procure-
ment activities and to help with end-user
But it’s an approach that is proven to be support management and AP processing.
time consuming and requires an extra­
ordinary amount of resources. Essentially, Downstream procurement is in many
both parties spend a great deal of time cases a policing operation, but that need
discussing what is done, what should be not be the case. By providing operational
invoiced and conversely, what did not services, such as buying support, spot
exist in the statement of work. As a result, buying, compliance and administrative
outsourcing engagements become much services on a global basis, procure-
more cost intensive. ment can become proactive gate­keepers
that effectively manages the wider
With the “What-Approach”, the focus is organisation’s purchasing needs.

4 Capgemini & Procurement Leaders Outsourcing Research – All rights reserved


TOPIC | Managing Indirect Spend

CHECKLIST: PROVIDERS’ SERVICES demand and the supplier base is • Technology:


For successful procurement outsourcing, essential for ensuring maximum value – Contract Management Solution to
an outsourcing provider must cover: from negotiated contracts; map all existing agreements
– e-Sourcing solution for supplier man-
Strategic Procurement Services • Risk management – managing and agement and RFP-Management
• Strategic sourcing – setting the optimal mitigating supplier risks is essential to – e-Ordering and Procurement Solu-
procurement strategy per category to ensure continuity of supply and to mini- tion to track actual spend
negotiate improved contracts; mise disruptions in the supply chain. – Reporting and Analytics

• Spend analysis – providing in-depth Operational procurement Contract Savings


knowledge of the company’s spend on services With the right framework set in place,
all necessary levels of detail; • Content management – suppliers, procurement can focus on the main topic
contracts and supplier content need to during contract negotiations: contract
• Contract implementation – sourced be managed over time; savings. Customer/supplier engagement
savings are often seen as paper savings is no longer about measuring specific
if the contracts are not duly implemented • Activity & support plan – daily procure- tasks and processes, but instead, it is
and made visible to the organisation; ment activities such as call-off support about quick order management, just-
and spot buying need to be provided to in-time supply and minimising the effort
• Compliance management – ensuring the organisation to minimise maverick needed to manage indirect spend.
that savings are sustainable year on year spending;
through active management of call-off However, none of these should
methods and supplier and procurement • Process management – procurement/ compromise value, which is of equal, if
policies; purchasing orders (POs), business not higher, importance.
documents and invoices need to be
• Category management – managing managed and processed.

What are the current challenges and drivers for your organisation?

100

75

50

25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
0
1 - Corporate restructuring 41.04% 9 - Corporate social responsibility 41.04%
2 - Cost reduction 94.03% 10 - Demonstrating increased shareholder value
3 - Business / operational risk management 47.76% 30.6%
4 - Financing / securitising the supply chain 11 - Supply chain improvements – process
14.93% efficiencies 57.46%
5 - Sustainable sourcing 49.25% 12 - Exchange rate fluctuations 20.15%
6 - M & A activity 14.93% 13 - Technology advancements 18.66%
7 - Raw material prices 41.79% 14 - Cross-functional collaboration 52.99%
8 - Supplier relationship management 70.15% 15 - Other (please state) 2.24%

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 5


Managing Indirect Spend | Motivate your stakeholders

Motivate your stakeholders


Bob Booth
Head of BPO – Capgemini Procurement Services

The same principle applies to all areas of procurement needs to start looking at its
indirect spend. A poor understanding of alignment with the wider organisation and
stakeholder needs, insufficient supply- the talent within it.
base visibility and a lack of knowledge of
which suppliers can be used are often The next phase is to build the business
reasons why procurement initiatives do not case for change, which requires a real
yield results or, in some cases, even fail. understanding of the senior stakeholders
and key influencers affected and involved.
This is not only the case for the end users What advantages would they get out
of indirect goods and services but also for of a procure-to-pay programme? What
senior stakeholders. Management buy- disadvantages? What are their doubts,
in, a good project team, a solid software motivators and drivers?
infrastructure and change management
are the essential ingredients needed to put For instance, a procurement team at a
a successful buying organisation together. financial services company might come to
Among those, management buy-in typically the conclusion that the purchasing of new
plays a vital role and is easiest to achieve trading-room equipment will not provide a
with a centralised management structure. sufficient return on investment, resulting in
Bob Booth a push-back on the demand expressed by
These dynamics are subject to change its internal client.
again as soon as profit and loss (P&L)
In order to do successful procurement, responsibilities, for instance, in the form of The final step is to sell the business
is it critical that the procurement strategy department heads, enter the game. In fact, case for the change, using a “stake-
is aligned clearly with the strategies of a P&L structure is an ideal lever to resist holder influence map”, which displays
the wider business? Is it critical that it is any centrally-led procurement initiative. the stakeholders’ roles in the decision
aligned with the strategies of individual Regardless of how positive a central-led process, their likely motivation and their
business units? Is it sometimes even initiative would be for the entire company, personal and professional drivers. When
critical to align it with strategies of depart- these stakeholders are not responsible for the procurement organisation goes into
ments? Yes it is. the big picture, but for the profit of their the negotiation process, it should clearly
given entity, and only look at the cost and map out why it is engaging in the purchas-
Procurement departments and purchasing benefits impacts for themselves. ing initiative and understand the benefits
professionals are responsible for aligning that will be received, such as shorter
procurement’s aims with those of key So, what is the best approach? Before delivery circles, lower costs and allowing
stakeholders. This is to maximise the any organisation starts an indirect spend employees to focus on their key duties for
financial, process and quality benefits programme, it has to analyse the potential each group of stakeholders.
and reduce the negative impact of the scenarios and ask questions such as:
effect that buying decisions can have on what are the total, current indirect spend While such a structured approach may
company stakeholders. The alignment also volumes? What could be achieved by an require more effort, the long-term benefits
smoothens the establishment of a strategy e-procurement initiative? What are the not only affect procurement but also the
across the organization. potential savings? How would it affect wider organisation.
process costs, cost per order and cost per
Anyone who has been in charge of sourcing, invoice? What kind of business control and In summary, procurement is a continuous
for example, fleet for senior manage­ contract compliance can be achieved? change-management activity and unless
ment, will understand what this means. What is the ideal organisational structure you understand your stakeholders
Top manage­ment might be demanding that is needed to support the future, motivations and their likely objections, you
a company car that they feel meets their potentially automated, operating model? will struggle to convince them to support
personal needs. “Why are you so concerned the change you desire and to build a
with saving money for the company, when These questions build up to a procure- consensus for change.
this car is for me?” they might ask. ment value assessment. Once completed,

6 Capgemini & Procurement Leaders Outsourcing Research – All rights reserved


Outsourcing indirect spend – new landscape, new drivers? | Managing Indirect Spend

Outsourcing indirect spend


– new landscape, new drivers?
Procurement Leaders and
Capgemini Annual turnover
Procurement Services conducted (in millions of Euro)
!
this research to analyze the drivers in
6,11
indirect spend and the out­sourcing
10,000m+
trend. The study was sent out to the 11,67
Procure­ment Leaders Network in 5,001m to 10,000m
Europe. Target group were CPOs and 1,001m to 5,000m
procurement directors. 10,00 35,67 501m to 1,000m
Over 190 CPOs and other senior pro- 101m to 500m
curement executives from all over the Less than 100m
world, and a wide array of industries, 21,21
took part in the study, with response
14,44
rates from the UK, the US and Swit-
zerland being higher than those from
other territories. Of those questioned,
85% named procurement as their core
responsibility, 11% listed supply-chain Total procurement volume, %
(in millions of Euro)
management and just 1% operations.
6,63
A range of companies and industry
6,08 More than 5,000m
sectors were represented, with almost
three-quarters (72%) of procurement 3,001m to 5,000m
professionals coming from companies 30,39 1,001m to 3,000m
with an annual turnover of more than 18,23 501m to 1,000m
Euro 1bn. Over half of respondents
look after a procurement volume of 101m to 500m
Euro 1bn, and about one third (30%) at 51m to 100m
a volume of more than Euro 5bn. 13,26 Less than 50m
8,84
As far as the size of procurement 16,57
functions is concerned, the findings
revealed that, on average, 103 procure-
ment specialists cover direct materials
and services, while an average of 76 How many employees are there in
procurement specialists are dedicated your procurement function?
to the sourcing of indirect materials
and services. This ratio is interesting as
indirect spend covers only 5–20% of
Average number of
the total spend and yet a great deal of
specialists covering
resources are dedicated to it. indirect materials/services

76 103 Average no of specialists


covering direct
materials/services

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 7


Managing Indirect Spend | Outsourcing indirect spend – new landscape, new drivers?

SRM DRIVING PROCUREMENT Greater collaboration between procure-


AGENDA MORE THAN EVER
“Whatever the ment and the wider business was also
Not surprisingly, cost reduction is still strategic imperatives, seen as essential: 53% of respondents
the over-riding priority for organizations placed cross-functional collaboration
as they look to weather the worst effects cost is still king and among their top priorities. Business and
of the global economic slowdown. In fact, operational risk management is still
94% of respondents viewed cost reduction if that continues to high with 48%, although less prevalent.
as the major challenge and driver facing
their team at the current time.
be the case, and if Meanwhile, 42% of the samples viewed
raw materials as their key driver. How-
procurement out­ ever, this number could go to over 90%
70% named supplier relationship if filtering only on respondents from
management (SRM) as a main focus area sourcing can continue production-related industry sectors.
and this could be owed to three possible
reasons: first, the heavy emphasis on SRM
to prove its worth, Despite the increased focus on cost,
could be a consequence of the economic then it will grow as we sustainable sourcing (49%) and
downturn, as a lot of suppliers were corporate social responsibility (CSR) (41%)
threatened by bankruptcy, representing move through 2010 remain important topics on procurement’s
immediate risk to their own supply chains. agenda. In fact, both areas “survived” the
Furthermore, the concept of competing and beyond” downturn and are generally seen as the
supply chains has become popular again. It future of procurement, as they will help to
– CPO from leading estate
is not only the R&D or the brand reputation achieve competitive advantage.
which makes a company unique, but so management provider.
are its suppliers who play an increasingly Another 42% viewed corporate restruc-
important role in a company’s positioning. turing as their main challenge. This
This goes hand in hand with “supply- finding may come as a surprise to many,
chain improvements”, which was considering that restructuring now­adays
identified by 57% as a key challenge/driver. is more a process as opposed to a

What are your current and future use of service from an outsourcing partner?

100

75

50

25

1 2 3 4 5 6
0
Currently Use Consider Outsourcing
Outsourcing in the Future
1 – Inventory management 34.09% 65.91%
1 Inventory management 34.09% (15) 65.91% (29)
2 – Procure-to-pay 41.67% 58.33%
2 Procure-to-pay 41.67% (25) 58.33% (35)
3 – Strategic sourcing 45.71% 54.29%
3 Strategic sourcing 45.71% (16) 54.29% (19)
4 – Hosting of software apps 54.05% 45.95%
4 Hosting of software apps
5 – Innovations 54.05% (40) 45.95%
40%(34) 60%
5 Innovations
6 – Other 40% (12) 60% (18) 41.67% 58.33%
6 Other 41.67% (5) 58.33% (7)

8 Capgemini & Procurement Leaders Outsourcing Research – All rights reserved


Outsourcing indirect spend – new landscape, new drivers? | Managing Indirect Spend

project. Supply chain financing (SCF) KEEPING CONTROL OF


however, was treated as a low priority, PROCUREMENT
What are your current and future
with only 15% referring to it as a priority Our survey findings suggest that
in their respective organisations. Similar most companies are still reluctant to plans for procurement outsourcing?
observations were made for Technology surrender control of their procure­
advancements (19%) and M&A activity ment operation by outsourcing
(15%). it to an external organisation. Of
those questioned in the study, only
GAINING VISIBILITY – A KEY 12% were currently outsourcing
REQUIREMENT procurement. Furthermore, 61%
It is no surprise that procurement’s of respondents said there were no
priorities appear to mirror those of the plans to outsource procurement in
wider-organisation and, keeping in line the near future, although one quarter
with the increased focus on cost, gaining (24%) revealed that procurement
visibility into procurement expenditure is outsourcing was a consideration.
seen as vital. Over half of those ques- Should this consideration materialize, 1 – Currently outsourcing: 14.73% (19)
tioned (52%), listed improve expenditure then procurement would assume a 2 – Considering outsourcing: 24.03% (31)
visibility as a high priority on their agenda. margin similar to payroll or logistics
3 – No plan to outsource: 61.24% (79)
The reduction of working capital also out­sourcing. Still, the future will tell
ranked among the top procurement pri- if these considerations will become
orities, with 49% confirming this to be the decisions in the end.
case. In a series of qualitative interviews
with CPOs conducted alongside this INCREASED ACTIVITY How do you see activity changing
study, the reduction of working capital PREDICTED with regard to procurement
was seen as the major requirement for When asked how they saw activity outsourcing in the next year
procurement at the current time, ranking changing with regard to procure-
marginally higher than gaining greater ment outsourcing over the next
spend visibility. year, almost half (49%) predicted an
increased uptake, while only a small
In comparison, reducing the number minority, 3.4% said that they expect
of suppliers was seen as slightly less outsourcing to downscale. This same
relevant, with barely one-third (31%) trend was seen by the CPOs involved
of procurement executives ranking it in the study, with 43% anticipating
as a top priority. This finding was also an increase in outsourcing, and
supported by the qualitative CPO inter- 47% predicting that the situation will
views conducted; here, supplier reduction remain unchanged, whereas barely
was rated below both working capital anyone expected a decrease. With
1 – Increased activity: 49.15% (58)
reduction and spend visibility. the economic recovery remaining
fragile, 38% of the overall sample 2 – Decreased activity: 3.39% (4)
Note: The above percentages reflect the anticipated an unchanging situation, 3 – Stay the same: 38.14% (45)
top two scores combined (5 and 6) on a an indication that short-term 4 – Don’t know: 9.32% (11)
six point scale. objectives are currently over-riding
long-term plans.
PROCUREMENT’S INDIRECT
CONTROL The evolving maturity of the procure­ When are you planning
Office services and supplies topped ment outsourcing market was to outsource?
the areas of spend under procure- identified by some as a major driver
ment’s control. An overwhelming 92% for growth, with the increased
of procure­ment functions control the range of services put forward by
spend in this area, with travel (84%), IT & out­sourcing providers offering
telecoms (83%), facilities management companies more scope to use out-
and professional services (80%) next sourced expertise.
in line. Further findings revealed that
logistics spend was managed by 71% of Given the fragile nature of the global
procurement organisations, a figure that economic outlook, those compa-
puts it marginally behind utilities (74%), nies considering outsourcing were
but ahead of fleet (68%) and marketing in no major hurry to speed up their
services (63%) – two areas traditionally decision making, with 47% planning
out of procurement’s hands, but increas- to outsource within 1–2 years, 37% 1 – Within the next 12 months: 36.67% (11)
ingly coming under its radar. planning to do so within the next 12 2 – Within 1–2 years: 46.67% (14)
months and 17% looking at a longer 3 – Within 3–5 years: 16.67% (5)
time frame, between 3 and 5 years.

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 9


Managing Indirect Spend | Outsourcing indirect spend – new landscape, new drivers?

Of those companies already engaged in ment & infrastructure was the most MIXED PICTURE ON PROVIDERS
some procurement out­sourcing activ- commonly outsourced business function IT service providers are leading the way
ity, eProcurement systems management (49%), followed by payroll (39%) and when it comes to the supplier space. Of
turned out to be the most commonly logistics (32%). Finance & accounting those questioned, 44% are currently out-
outsourced procurement function; 51% (18%) and legal (13%) joined procure- sourcing their procurement to IT service
currently outsource this area of spend. ment (12%) as the three least outsourced providers, which once again illustrates
The study further reflected that 38% of business areas. how reliant organisations are on outside
those questioned had outsourced their expertise in the technology marketplace.
procurement transaction processing With that in mind, it is no surprise that Surprisingly, specialist outsourcing service
activity, while another 35% had moved IT-related activity is only topped by travel providers (24%), pure play procurement
their indirect goods & services procure- when it comes to the indirect spend service providers (16%), were topped by
ment out of house. This figure compares categories that our respondents are both logistics service providers (34%) and
starkly with the 13% that have outsourced currently outsourcing. Three-quarters of service or product suppliers (28%).
their direct goods procurement and the respondents (75%) named travel as their
20% that have outsourced their sourcing most frequently indirect spend category, PROCUREMENT’S INCREASING
(full or partial) activities. The findings also which, along with IT & tele­communications INFLUENCE ON OUTSOURCING
revealed that a minority of 3% is out­ (63%) and software & IT professional DECISIONS
sourcing all goods and services. services (63%) formed the top three. Does procurement have any say when it
Marketing (21%), professional services, comes to making outsourcing decisions?
IT AHEAD IN OUTSOURCING legal services and HR & personnel (17% One of the biggest revelations of this study
RACE respectively) were the four least out- was the increasing influence procurement
According to our research, IT manage- sourced areas of indirect spend. appears to be gaining in decision­-making

Which of the following indirect expenditures are managed by procurement?

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1 2 3 4 5 6 7 8 9 10 11
0
1 - IT & telecoms 82.71% (110) 7 - Office services & supplies 91.73% (122)
2 - Marketing services 63.16% (84) 8 - Fleet 67.67% (90)
3 - Human resources 53.38% (71) 9 - Logistics 71.43% (95)
4 - Facilities management 79.7% (106) 10 - Travel 84.21% (112)
5 - Utilities 73.68% (98) 11 - Other 14.29% (19)
6 - Professional services 79.7% (106)

10 Capgemini & Procurement Leaders Outsourcing Research – All rights reserved


Outsourcing indirect spend – new landscape, new drivers? | Managing Indirect Spend

across the wider business. According to our


findings, procurement plays a major role in
“We outsource very specific elements
negotiation (87%), contract management of our procurement – at the moment
(72%) and supplier selection (71%). However,
procurement’s growing strategic influence is there just isn’t the expertise available
reflected in the role it plays in the intelligence
gathering and market analysis (55%).
in the market­place for a wholesale
shift to procure­ment outsourcing”
Surprisingly, given the volatile market
conditions experienced in the recent past, – senior European-based CPO.
procurement is still kept at arm’s length
when it comes to risk and performance
management. Only 41% indicated they
were actively involved in risk management
decision making, and the same was true
for performance management.

Note: The above percentages reflect the


top two scores combined (5 and 6) on a
six point scale.

Which business are you currently outsourcing?

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1 2 3 4 5 6 7 8 9 10
0
1 - HR / benefits 24.03% (31) 6 - Logistics 31.78% (41)
2 - IT management & infrastructure 48.84% (63) 7 - Real estate management 21.71% (28)
3 - Payroll 38.76% (50) 8 - Procurement 12.4% (16)
4 - Finance & accounting 17.83% (23) 9 - Legal 13.18% (17)
5 - Manufacturing 21.71% (28) 10 - Other 20.93% (27)

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 11


Managing Indirect Spend | Outsourcing indirect spend – new landscape, new drivers?

“For certain commodities procurement adds


no-value by doing it itself – by outsourcing you
can save money and still deliver the kind of
per­formance that the business expects and needs”
– CPO from a pan-European financial giant.

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Outsourcing indirect spend – new landscape, new drivers? | Managing Indirect Spend

MANAGING RISK A MAJOR DRIVER important factors were a supplier’s change petencies being flagged as another key
Unsurprisingly, given the current manage­ment capability (63%) and financial stumbling block by 54%. Price also fit into
economic climate, when it comes strength (60%). this mix of top concerns as 53% voiced that
to selecting an outsourcing partner, out­sourcing fees were too costly. This may
proven capability ranked highest Our findings indicate a mixed picture when come as a surprise to those who thought
in terms of importance (86%) – an it comes to the major concerns or risks that the price of outsourcing has become
indication companies are either unlikely, for those companies considering out­ less relevant as today’s companies are
or un­willing, to place their trust in sourcing. The top concern identified by deviating from low cost outsourcing work
an outsourcing provider without more than half of procurement executives and instead leverage quality and innovation
a proven track record of success. (56%) was unclear fee structure, implying in order to stay competitive. Slightly less
Spend category expertise was the that communication between buying than half of respondents (48%) stated that
second-most important criterion that organisations and their suppliers is less the perceived loss of control was a major
companies pay attention to as they than ideal. Another top concern expressed concern, a finding that further feeds into the
evaluate suppliers; this was supported by 55% was the supplier’s infrastructure recurring theme of lack of supplier trust.
by a response rate of 84%. Total cost and capacity to deliver, raising the issue of
also showed to be critical (81%), as did trust yet again. This sentiment was further
Return on investment (78%). Trailing, but compounded by outsourcing core com-

What procurement functions have you outsourced?

100

75

50

25

6
1 2 3 4 5 9 7
0
1 - eProcurement systems management 50.7% 5 - All goods & services 2.82%
2 - Procurement transaction processing 38.03% 6 - Direct goods & services 4.23%
3 - Sourcing (full or partial) 19.72% 7 - Indirect goods & services 35.21%
4 - Direct goods 12.68%

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Managing Indirect Spend | Outsourcing indirect spend – new landscape, new drivers?

LEARNING FROM THE PAST the increasing importance of innovation “As the market matures
Inventory management has been one is illustrated by these contrasting data
of the key issues facing procurement points: 60% would use an outsourcing then I think we’re going
over the past two years, and our study partner to leverage innovation in the future,
does indeed suggest it is the area most but “only” 40% do so now.
to see more and more
respondents will be looking for out-
sourced expertise in the future. Of those FACILITIES MANAGEMENT
companies looking to
questioned, only 34% currently use TAKING OFF procurement outsourcing
an outsourcing provider for inventory When asked to estimate which areas of
manage­ment, however, in future, this indirect spend had the most potential as a means of achieving
figure could rise to as high as 66%,
as estimated by our respondent base.
over the next five years, half of our
sample (50%) pointed to facilities. IT and
efficiencies and cost
Procure-to-pay might see a similar telecommunications (49%), software savings”
uptake: 52% currently use an outsourcing and IT professional services (45%) and
partner for it but in the future, 58% would contract labour (45%) proved to be its – CPO from major UK-based
consider using one. Another indication of closest challengers. Marketing, print, corporate.

To what degree is the procurement function involved in


the Outsourcing decision-making process?

100

75

50

25

1 2 3 4 5 6
0

1 2 3 4 5 6

1. Intelligence gathering, 3.15% 5.51% 11.81% 24.41% 28.35% 26.77%


market analysi
2. Supplier 0.78% 1.56% 9.38% 17.19% 29.69% 41.41%
selection
3. Negotiation 1.56% 1.56% 1.56% 8.59% 28.91% 57.81%
4. Contract management 2.27% 4.55% 8.33% 13.64% 32.58% 38.64%
5. Performance 1.56% 9.38% 17.19% 30.47% 24.22% 17.19%
management
6. Risk 0.78% 10.16% 14.84% 33.59% 25% 15.62%
management

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Outsourcing indirect spend – new landscape, new drivers? | Managing Indirect Spend

legal services, HR and personnel and a slight shift in opinion, with 42% regarding the need for procurement to remain “a
logistics were each identified by about a procurement outsourcing positively and far core competency” as the primary reason
third (32%-35%) as opportunities in the fewer (36%) reflecting a neutral stance. why outsourcing was not on his agenda.
first half of the decade. Conversely, office
equipment (26%) and packaging (11%) – When further probing as to which factors However, many others had a different
two areas of direct spend already being had contributed to these perceptions, the view, reporting that outsourcing had
extensively outsourced – were viewed as variety of responses illustrated that pro- enabled them to save money and
limited areas. curement outsourcing still has some way maintain tighter controls on procure-
to go to establish itself in the mainstream ment spend. Both the capability and
PERCEPTION VERSUS REALITY of outsourced business functions. capacity of the service provider were
As far as the perception of outsourcing is viewed as major factors contributing to
concerned, nearly half (45%) indicated to Lack of experience and concerns the success of the outsourcing outcome.
have no opinion either way. However, 37% over ROI (return on investment) were two
viewed procurement outsourcing in a posi- of the major factors that contributed to Among those who had no opinion on
tive light, and only 18% expressed to have the negative perceptions of procurement procurement outsourcing, the majority
a negative opinion. When asking a select outsourcing among some procurement admitted that the lack of exposure to it
group of CPOs the same question, there was executives. Another respondent identified contributed to their neutral standpoint.

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 15


Managing Indirect Spend | Outsourcing indirect spend – new landscape, new drivers?

Please rate the following in terms of importance


when selecting an outsourcing partner
Complimentary and
supporting technologies
Specialist
offering
Breadth of
service offering
Governance and
contract management
Local delivery
capabilities
Financial
strength
Change management
capability
Spend category
expertise
Return on
investment
Total cost

Proven capability

0 100 200 300 400 500 600 700 800

What are your key concerns or risks when considering outsourcing?

Personality
conflicts
Extended supply chain /
centralisation
Already have existing
procurement systems
Implementation and
start up problems
Internal
talent
Impact on
internal morale
Unable to build compelling
business case
Perceived loss
of control
Outsourcing core
competencies
Infrastructure /
capacity to deliver
Outsourcing

Fee structure unclear

0 200 400 600 800 1000 1200

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Outsourcing indirect spend – new landscape, new drivers? | Managing Indirect Spend

About Procurement About Capgemini


Leaders Procurement Services
The Procurement Leaders Network is an inter- Capgemini, one of the world’s top notch
national membership-led community focused providers of consulting, technology and
exclusively for executive level procurement, outsourcing services, has recently launched
sourcing and supply chain management ‘Procurement as a Service™. This service
professionals. concept seamlessly integrates IBX On-demand
procurement tools, strategic and operational
The Network acts as a catalyst to spearhead outsourcing services and consulting.
innovation, leadership and strategy and has been
developed in support of our members growing The IBX On-demand Platform represents a
global remit. It delivers high quality insight and complete set of software tools for the procure-
perspective on today’s most critical corporate ment organization, like IBX eProcurement and
issues, whilst providing members with new ideas, IBX eSourcing, all delivered on-demand. With
approaches and strategies to meet their current this solution suite Capgemini Procurement
and future business challenges. Services provide clients inroads into leading
practices in the industry and drives year over
More information is available at: year savings directly to the bottom line.
www.procurementleaders.com
Present in more than 30 nations, Capgemini
reported in 2009 global revenues of EUR 8.4
billion and employs 90,000 people worldwide.

More information is available at:


www.capgemini.com/Procurement
www.ibxplatform.com

Capgemini & Procurement Leaders Outsourcing Research – All rights reserved 17

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