4 Tips for Outsourcing Direct Spend Categories
As procurement professionals, we’ve made great strides advancing the discipline. One proof of this is the increasing importance that the Chief Procurement Officer role now enjoys in the boardroom. Until now, our focus has been to control direct spend in order to deliver cost savings to the bottom line while simultaneously leveraging our supply relationships to optimize quality, time and risk. This approach has served us well; however, many of our industries are now undergoing disruptive market shifts, outsourcing several non-core operations. Our success is becoming less dependent on what happens inside our four walls and more dependent on the ecosystem surrounding our business.
We need to take the next leap in advancing the profession’s value add toward building and fostering an ecosystem of strategic supply partners. To free up our valuable time to accomplish this, we need to outsource the tactical day-to-day blocking and tackling of select direct spend categories to trusted managed services firms. Below are four tips to aid your efforts in outsourcing direct spend categories.
4 Tips for Outsourcing Direct Spend Categories
1. Reframe Control from Doing to Visibility
Historically, we’ve viewed direct spend as a strategic procurement exercise that only our talented internal teams could execute. We need to adjust our default logic to uncork efficiency gains.
“Foster an environment of faster procurement by leveraging external subject matter expertise. This can be span from very targeted support specific to a single step in the sourcing process to the outsourcing of an entire category of spend,” says Philip Ideson, Managing Director of Winter Garden, Florida based management consultancy, Art of Procurement.
We need to redefine “effective spend management” from the past idea of “only we can do it” to “others can do it, as long as we have visibility” and allow our valuable, internal procurement professionals to break free of the tactical quoting and sourcing, and focus on building an ecosystem of strategic partnerships.
2. Expertise + Technology Leads to Sustainable Success
A newer breed of managed services firms, technology-enabled services firms, are combining the proven people and process model with modern cloud and artificial intelligence software to lower costs. These firms are better able to balance workload by using agile software tools that allow them to support in a pay-as-you-buy fashion. The net result of this new variable cost model is supply management cost reductions that can be as high as fifty percent.
Select a partner that will bring the best of innovation, both internally developed and off-the-shelf software solutions paired with talented industry veterans able to use the tools to drive results.
3. Don’t Dictate the Engagement Process
It’s easy to want to spell out every word in the scope of work, but don’t. First, it’s nearly impossible. Second, deviating from a supply partner’s standard process is more likely to result in reduced innovation and/or cost-effective solutions that partner could bring to the table. Certainly, there needs to be give and take, but it’s better to have potential partners outline their recommended approach first.
As an example, don’t require certain team members be staffed to support you. This not only adds cost, but it simply isn’t a practical request. People will inevitably come and go, so if a supplier must seek your approval to staff team members, it will slow both of you down and add unnecessary cost and complexity.
4. Incentivize Supply Partners in Creative Ways
Vendors sell you a Pepsi; supply partners enable a strategic competitive advantage. The more you can align incentives and establish your managed services firm as an extension of your team, the better your result. Joint sharing of cost savings is a great place to start aligning incentives.
Challenge yourself to go beyond simply sharing cost savings to achieve deeper alignment. Opportunities abound. Ask your partner what would wildly excite them. Examples could include providing a testimonial for their website, introductions to executives in your network or piloting a new technology. There are many things we as leaders can offer that don’t cost money.
The Future of Procurement as Innovation Curator
Forward-thinking procurement leaders are poised to unleash a wave of innovation by releasing themselves and their teams from the tactical day-to-day grind of select direct spend categories. This freed up time will call the profession to repurpose efforts toward higher-end strategic initiatives such as nurturing a broader ecosystem of partnerships. Managed services firms are positioned to become invaluable supply partners for procurement leaders seeking to unlock supply innovation potential in the days ahead.