Business & Technology Nexus

Dave Stephens on technology and business trends

Protecting Your Organization from Getting BPO’d Using Center-Led Procurement

with 2 comments

Some organizations are wondering when the businesses they serve will decide to replace them – you know, do “make vs. buy” on the Procurement function itself. One way to help executive management understand your value is to “show a profit” for the services you render.

In a previous post I discussed the politics behind a concept called Center-Led Procurement. In it, I explained Center-Led was a way to promote Procurement policies while empowering the business. It blends centralized supply base management with decentralized decision-making, just as long as the decentralized decisions are transparent and follow central policies.

Well, some systems can take Center-Led one step further – the Procurement department and its Payables counterpart can be placed in a shared service center construct. They can form a “virtual organization” if you like. Let’s call it SSP for Shared Service Procurement.

The SSP can broker all the businesses Procurement transactions, from Sourcing through Req-to-Check. And it can charge for these services in ways that are deemed reasonable to executive management and business stakeholders. In this way, the Procurement leader can run a P/L and compare her organization’s value to outsourced offerings.

Systems supporting Center-Led Procurement can “tax” transactions as they flow from the business organizations through the SSP. Through activity-based pricing the business essentially pays a very small mark-up to the company’s negotiated prices. Those small mark-ups add up, and can cover the SSP’s expenses. And they need not be hidden from businesses. The SSP can then use this data and openly compare their value to BPO offerings available.

Of course Procurement BPO vendors would argue against a comparison like this. They would be quick to point out their primary value might be in better contracts with lower pricing, not in their low cost. But that’s tough to prove – and in the end no one should know your supply base like you do.

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Written by Dave Stephens

04/4/06 8:09 AM at 8:09 am

Posted in Opinion

2 Responses

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  1. For the big companies, there is a third choice, moving the tactical operations to low-cost countries. While the commodity managers are operating at strategic level in the corporate HQs of the large American Corporations, the tactical guys just approving the purchase orders or converting the reqs to purchase orders are all going to be out of low-cost countries.

    There is no limit to the oursourcing in the American Corporate world. Today the buyers. Tomorrow it could as well be the commodity managers. And day after, it would be the Procurement Dept VP! What makes the CxOs think that their jobs can’t be oursourced? Not that there aren’t great guys in the low-cost (but not low-wage, there is a big difference as wage is relative to the norms of the place) countries who can replace their positions?

    Bottomline, process optimizations only help to some extent. After that, it’s all about cost cutting in all possible ways.

    AnonymousCoward

    04/6/06 10:07 PM at 10:07 pm

  2. Moving tactical operations to low-cost countries makes sense for the Fortune 500. Many believe it justs makes sense period, but I’m not so sure. I’ve managed teams in India for years and years and have lived through low-cost country expense report auditing & tactical buyer txn processing. I’ll think on the comment above some more and perhaps post some thoughts around low-cost country transaction processing pro’s and con’s. Still, I concede the commenter’s view is by far the majority view today.

    Dave Stephens

    04/7/06 3:20 PM at 3:20 pm


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