There is an uprising in the world of Source-to-Pay BPO. It’s hard to say when it started – before or after Accenture’s acquisition of their number one competitor in the space – but companies are beginning to gain clarity around what they want from an outsourced procurement service provider. And what they are looking for doesn’t fit the traditional BPO model.
For many years, the business case for outsourcing the Source-to-Pay function was highly saleable due to the immaturity of the procurement marketplace. Once organizations began to realize their sourcing departments were ineffective at current staffing levels and unwilling to invest in additional resources, they naturally turned to a BPO model for support. Firms like Procurian provided a core group of resources with expertise in strategic sourcing and category management, with a backbone of transactional support in low cost countries. BPO’s could provide the additional headcount needed to increase spend under management or a fully outsourced procurement group at a lower initial operating cost.
However, as time progressed, the year-over-year FTE-based cost model of a BPO support team rivaled what clients would pay for in-house resources– and because the requirements were outsourced to a third party, the level of accountability and a clear demonstration of ROI were not always available. The outsourced provider was not aligned with the objectives of the business and to make things more difficult, contractual requirements required organizations to continue utilizing these resources even if they were no longer needed, with limited flexibility to adjust staffing levels down within a contract period due to evolving business needs.
Now Accenture’s BPO lead, Mike Salvino, has changed taken the word “outsourcing” out of Accenture’s vocabulary. “Outsourcing” has been replaced with “Operations”, and according to Mr. Salvino, fee models will be aligned with business outcomes. However, in my mind, the Accenture acquisition simply compounds the issues of scalability and ROI. Because Accenture has purchased their only real competition for U.S.-based BPO staffing in the Source-to-Pay arena, prices for their services will likely go up. In addition, Accenture’s substantial pool of overseas resources means that work currently done domestically may be shifted overseas, potentially resulting in a lower degree of quality at a higher price and further shifting away from the “business outcomes” based model.
The market has matured, and the new direction seems clear. Best-in-class organizations are moving away from the Source-to-Pay BPO Model to more scalable, on-demand solutions. Having 100% access to a large pool of sourcing professionals is no longer required because, once sourcing for a category is complete, the necessity for the ongoing resource is greatly reduced until a contract comes up for renewal again. Customized, scalable solutions – where resources go where they are needed and are not long-term fixed costs– tend to provide for the highest ROI in terms of overall savings as well as the most sustainable cost model. They are also typically more aligned with a customer’s needs, as they are adaptable and flexible versus the BPO one-size-fits-all model.
Sourcing has evolved - it no longer ties neatly into the transactional nature of a BPO offering. Companies want their sourcing groups to drive supplier innovation and create a competitive advantage for their organization. They want support through best practices, market intelligence, and more focused category based service offerings. They want smaller scale engagements and they don’t want fixed costs. Can these new requirements reconcile with the bloated operating model of the traditional BPO? Only time will tell, but so far it doesn’t look like the outsourcing giants have gotten the message.
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