Achieving Operational Rhythm in Source-to-Pay Outsourcing

Friday May 01, 2009 - 12pm ET / By Federico Ferreres and Pedro Parra

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Content
  • Operational Rhythm
  • Establishing a consistent set of appropriate metrics
  • Envisioning the right tracking tool
  • Opportune delivery of the appropriate metrics to stakeholders
  • Disciplined communications
  • Order of the factors
  • Summary
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Preface

Many companies are considering outsourcing parts of their source-to-pay (S2P) operations as a way to curtail costs, gain operational efficiencies and to enable focus on strategic restructuring of the sourcing function. Although market penetration for these services is still relatively small, the services are poised to grow at a fast pace during the next five years. According to a 2008 Research and Markets wire, the external sourcing services could grow as much as 37%1 during the coming years. It is no wonder, then, that S2P is becoming a focus of attention, a main source of improvement, and a place of high expectations.

But many S2P adopters have also learned that reality does not always match intent, and many deals have not lived up to the promises. Early adopters have found that savings were often below expectations. In 2007, leading market analyst Rachel Stormonth stated, "Organizations believe that they have negotiated favorable discounts from suppliers, but dissatisfaction with the overall cost-effectiveness of their indirect procurement services persists since the level of centralization of indirect procurement remains low and
they continue to lack visibility of spend across the enterprise."

While part of the gap can be attributed to exaggerated initial expectations or problems during the design phase of the engagement, many engagements simply fail due to a lack of adequate control mechanisms and operational practices. It has become clear that tapping into the full potential of S2P not only requires a good plan, but also a flawless execution.

In this white paper, we highlight several best practices that have helped our clients achieve highly efficient procurement operations within relatively short time periods. Building upon these practices helps in achieving operational rhythm, a seamless and metric-driven integration between the outsourcing organization and its customer. This approach goes beyond the scope of many S2P outsourcing arrangements, which are focused on three main characteristics:

  • Productivity through a talented team
  • Savings through economies of scale and outsourcing
  • Cost-containment through global sourcing

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