back to the main page

More Companies Using Business Process Outsourcing for Procurement

For years, HR departments were the main users of business process outsourcing (BPO) services. Now that traditional stronghold is changing.

A growing number of companies are turning to BPO as part of a broader strategy aimed at improving procurement. BPO is particularly popular for noncritical categories (such as office supplies, some services, printers and copiers, etc.) or low-value tasks (such as matching supplier invoices).

Business process outsourcing is a strategy of contracting with a third-party service provider, typically a specialist in the domain, for the technology and manpower—either in whole or in part—required to handle a vital, but nonessential aspect of running a business.

How hot is procurement BPO? According to Everest Research, the procurement outsourcing market grew more than 35 percent in 2006 and represents an annual managed spend of nearly US$40 billion.

BPO Evolution
Outsourced procurement may ultimately have a wider scope than HR and other areas, BPO observers say. That’s because procurement BPO is starting to address related areas like accounts payables and other financial components of procure-to-pay processes.

The other key aspect to procurement outsourcing that has caught the attention of CFOs is how it impacts the cost structure of an enterprise. For example, while disciplines such as HR outsourcing can reduce the cost of operations via labor arbitrage, savings associated with procurement outsourcing can go directly to the bottom line.

“Procurement isn’t a discrete or narrow process; it’s a far-reaching discipline that impacts business processes across the enterprise,” says Brian Farro, director of BPO services for Oracle.

“If you approach the issue with a broader perspective, it is clear that BPO providers cannot afford to place arbitrary limits on their offerings or peddle solutions based on isolated technology,” he says. “The successful providers will be the firms that create compelling solutions based on the integration of processes and supporting technologies across the enterprise.”

What to Look For: Consultation, Integration, Price Reduction
For this reason, the best procurement BPO service providers offer consultative services that examine and refine procurement processes and evaluate suppliers, in addition to managing portions, if not all, of certain procurement functions.

“This approach is all about understanding the spending profile of the end user and applying best practices for running a better process,” Farro says.

In addition to looking for this expert adviser approach, enterprises should also evaluate how tightly integrated the technology offerings of potential procurement BPO providers are. Providers that can offer a single stack of procurement and related applications (such as accounts payable, HR, and asset management) can make end-to-end procure-to-pay more efficient at a lower total cost of ownership.

Finally, look for a service provider that’s willing to incorporate price-reduction goals into service-level agreements. “Service providers that guarantee a 10 percent reduction in costs, for example, are putting some skin in the game,” Farro says. “This helps assure the customer is getting what it expects.”

Learn more about Oracle Business Process Outsourcing.