Procurement Outsourcing, a Strategic Imperative: - Sponsored Whitepaper

Procurement Outsourcing, a Strategic Imperative:
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Executive Summary Organizations seeking to improve corporate performance often look to Business Process Outsourcing (BPO) services to streamline business processes and improve operational performance. Procurement is not immune from this pressure and outsourcing is becoming more accepted as a viable strategy for procurement performance improvement. Facilitating this push to the tipping point is the fact that procurement outsourcing is being leveraged to achieve strategic value beyond the cost-cutting, tactical benefits traditionally realized. While it is clear that those enterprises currently outsourcing prefer to pursue an incremental course, Best-in-Class companies have pushed the envelope deeper into full procurement outsourcing. But whether the choice is to outsource the procurement function in its entirety or incrementally, organizations have reported greater spend visibility, reduced procurement costs, and improved price savings as a result of procurement outsourcing. Best-in-Class Performance

Aberdeen evaluated over 260 enterprises in October and November of 2007 and distinguished Best-in-Class enterprises by the percentage of enterprise spend under management and the cost to process a single requisition-to-order cycle. Best-in-Class enterprises in this study are notable for their superior performance and credit procurement outsourcing with contributing to the following benefits: • 8.3% savings due to sourcing efforts from outsourcing operational and strategic sourcing • 30% lower costs to process a requisitions than all other companies • 55% rate of compliance to contractual agreements Competitive Maturity Assessment

Best-in-Class performers shared many common characteristics with respect to procurement outsourcing. Best-in-Class companies are: • Currently outsourcing 59% to 75% more of their spend • 14% to 43% more likely to have a centralized procurement organization across the entire enterprise • 2.5-times more likely to pursue full procurement outsourcing Required Actions

• Evaluate procurement competencies to establish a baseline and identify outsourcing needs • Appropriate people from within the enterprise and the procurement outsourcing provider to drive continuous improvement • Move beyond cost-cutting to focus on the strategic value of outsourcing procurement

Aberdeen defines procurement outsourcing as either full or incremental. Full procurement outsourcing entails leveraging an outsourcing provider to manage all aspects (all processes and categories) of the source-to-settle cycle. Incremental outsourcing involves utilizing an outsourcing provider to manage either distinct source-to-settle processes across all categories of spend, all source-to settle processes across specific categories of spend, or a combination of these approaches.
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