A Guide to Outsourcing the Source-to-Pay Function

Monday November 03, 2008 - 12pm ET / By: Mary Ellen Mitchell with Alejandro Camino and Pedro Parra

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Content
  • The move to an outsourced engagement
  • Phases of the transition
  • Best practices for s2p outsourcing engagements
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Preface

Challenging economic times will push companies and their management to find new ways to streamline operations and curtail costs. Initiatives to outsource non-core functions and streamline the supply-chain have been on the rise in recent times. Among these measures is offshore outsourcing of the purchase order (PO) processing function. Although its popularity has been lagging behind other BPO offerings, we foresee companies increasingly embracing source-to-pay (s2p) offshoring. As pressures to rapidly implement these engagements grow, so does the possibility of failure due to unsuccessfully transitioning in-house managed processes to outsourced engagements.

This document provides an overview of some of the challenges faced by today’s procurement organizations, plus insight on the factors that lead to successful transitions of business processes to an outsourcing service provider.

 

A turbulent environment for the CPO

Chief Procurement Officers (CPO’s) are pressured to increase the savings associated with the costs of goods and services without adding resources and, too often, with decreasing resources.

Savings are more difficult to predict because indexes are moving up, making the cost of steel, plastic, paper goods, and other commodities more expensive.

As oil prices rise and fall, impacting transportation costs, the total cost of goods fluctuates, making it difficult to determine which vendors in which countries offer the best prices and products. Adding to the equation more recently have been serious quality control issues; a situation that has pushed CPOs to rely on external firms to validate the quality of products. Such dependency is worrisome.

CPOs often are hired to work with existing procurement teams, which usually have applied good practices to most of the main spend items. But as they renegotiate contracts, squeezing out additional savings becomes more difficult, because some teams only have transactional skills and may not have good processes and best practices supporting them; such combination may not allow the organization to thrive in a challenging global-sourcing environment.

Despite these challenges, CPOs still are expected to bring in yearly savings of more than 10-15% of spending. They deal with challenges in the following four priority areas:

  1. Increase cost savings in a market place where prices are a moving target.
  2. Engage reputable sourcing vendors who provide the best value through excellent quality standards, and have the financial stability to provide goods and services in a down market.
  3. Hedge against the ups and downs of the global economy and commodity markets
  4. Evolve the existing team from transaction processing to skilled sourcing experts without increasing base costs.

CPOs facing these priorities also must continue day-to-day operations to meet business requirements. By outsourcing non strategic tasks or commodities, CPOs can divert the attention of their staff toward strategic initiatives. Executing a well-run transition to eliminate any concerns associated with outsourcing is important. Moving toward outsourcing requires a structured methodology.

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