The below is the opinion of the contributing author and not that of any affiliate companies or Outsource Magazine.
As procurement professionals, we are always striving to achieve the best total cost of ownership with the products and services we purchase. We’ve seen the negative impact that bottom-dollar pricing can have with respect to quality and delivery. We’ve seen how over-engineered products with high price tags can erode our margins. Our constant aim is to look at each purchase holistically and measure its total value to the company we represent. So why don’t we look at our procurement teams the same way?
Buyers are constantly struggling to get more done each day with fewer resources. Their days are filled with tactical work, such as vendor issues, expedited delivery requests, invoice discrepancies, urgent PO requests, data analysis, etc. However, to bring our procurement teams closer to best-in-class, shouldn’t we give them more time to focus on strategic activities, such as category management, strategic sourcing events, vendor partnerships, etc.? The tactical work needs to be completed, but well-qualified procurement professionals do not need to spend 50% or more of their valuable time with tactical busy work. They are rarely inspired by this work and it can prevent them from completing the strategic work that is more likely to bring the procurement department closer to best-in-class. We need to start analyzing our hiring and staffing strategies like we analyze our category strategies. By doing this we will realize that the new procurement outsource models make sense to implement.
Imagine this scenario: You have an over-utilized procurement team that needs additional full-time employees (FTEs) to balance the workload. You might have a buyer or category manager who is handling one too many categories resulting in being ineffective with all of them and leaving money on the table. You realize this and - with high levels of approval - create a requisition for a brand-new FTE to come in and take on some of the unwatched categories to achieve savings.
You think this strategy is ideal because it allows you to spread the workload, continue to build up the team’s size, and adds new talent to the mix.
Reality sets in when the job posting goes unfilled for months at a time and the unwatched categories continue to get the bare minimum of attention. Meanwhile, the savings opportunity you identified in the beginning of the year gets pushed out each month there is no backfill. Once you do find the right candidate, you make an offer for the FTE (competitive salary + benefits) and then begin the onboarding process, which is usually sidestepped due to the now urgent timeline to manage the open category. The new FTE will hopefully be specialized in the category and will begin working on it just as soon as they are acclimated to the new company culture, people, processes, etc.
Let’s assume the new hire is excellent and finds savings nearly immediately after moving into the role. Now let’s say they negotiated a three-year deal and their strategic work is done for the most part. Now what do you do with them? Assign them special projects? Wait until the vendor contract is due to negotiate the next deal? You have to ask yourself, does the decision to hire a FTE for one or two temporary sourcing projects have a positive TCO? Is hiring a full-time solution the right answer if it is a part-time problem? Does this sound familiar?
Procurement outsourcing does not have to be all or nothing. Strong procurement teams are not going anywhere for a while, however this seems to be the fear when groups are asked by leadership to look into outsourcing some of the workload. Listed here are two outsourcing options that could work for your procurement team when scenarios like the example given arise:
Option 1: Outsource the Grunt Work
Remember all the tactical work that was mentioned earlier? Why are you placing your star player at the ticket counter when they should be in the game making big plays? Match skill with work, keep them focused on strategic projects that interest them and outsource the grunt work. There are dozens of procurement outsourcing groups out there just waiting to take on the not-so-fun tactical work. Why not let them have it so you can focus on the important things? You may think it will cost too much to outsource or an outside resource won’t understand your business. In reality, many outsourcing companies are now equipped with DOsultants, not CONsultants. Rather than present a solution to you in Powerpoint and leave it for you to implement, a good outsourcing company will help define the most efficient process and then do the work at a reduced rate. They do the work, they understand procurement processes and they will likely help you redesign your workflows for faster results. Not to mention that by batching the tactical work and giving it to one group, by nature the work should be completed more consistently and with higher quality.
Option 2: Outsource the Non-Strategic Categories
Bruce Lee said, “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” This is true in the procurement world as well. If you need to source office supplies, would you rather use a generalist who sources all types of indirect categories all year or a specialist who only sources office supplies day in and day out for dozens of companies inside and outside your industry? The latter would be the best option. However, many companies make the mistake of hiring a specialist as an FTE and they sit idle once their category is in good shape. This is an opportunity for outsourcing. Hire the office supplies specialist through a procurement outsourcing company, get the benefit of their expertise, the value of their speed to completion, and only spend a fraction of the cost of an FTE.
If you decided to hire your own FTE to negotiate only office supplies, you’re really only going to get the benefit of their expertise prior to the final contract being signed with the vendor. After that, they really only need to manage the contract terms. While managing the contract is extremely important, this could be done by a procurement generalist on your team who could also manage many other indirect categories at the same time. Why have one expensive specialist managing a contract when a generalist could do the work along with other categories at the same price?
Now, not all outsourcing companies are created equal so do your research before choosing an outsourcing partner. The bottom line is that you should help your strategic sourcing team focus on being strategic by removing the mundane, non-strategic and uninspiring workload from their day.