Procurement BPO

This post is part of a series discussing BPOs and Strategic Sourcing:
In our last post in the series, we explored the cost modeling that a BPO provider might provide to you to help justify the return on investment on their services.   Keep in mind, costs are absolutely not the only consideration factor you should be looking at when evaluating a BPO decision.  That being said, as I said before, it seems to be the most talked about and evaluated aspect of choosing a BPO provider.

In this post though, I want to focus a little deeper on what the true cost and impact a sourcing team (or outsourced team) can have on your business.    The first thing that comes into play happens typically sometime in the first year or so of you newly formed BPO relationship.  When things are quite hitting the targets you expect, the BPO may offer some sort of compliance or change management program; for an additional cost.   With that being said, let’s look at cost and ROI again, this time with the new service they are requesting you buy.

Let’s remodel those original proposal costs now; adding in the new ‘Change Management’ team (likely in year two):
And your original costs:

Hmmm, that original 30%, half million dollar savings is now looking like 10% and less than $200K in savings.

But wait!  That’s not fair, right.  The BPO is bringing 20 Full Time Equivalents to the table, and we only have 15.   Sure, the price is about equal, but I’m getting 25% more resource than I was before!   This is still a much better solution than what I had before…Right?  We’ll get more savings in our sourcing than we did before because we can get to more projects!

Well, remember what I said before.  An unrealistic low price, more often than not, translates to poor service.   This is where it becomes critical to really vet out your potential sourcing BPO supplier during the RFP and selection process.   Looking at numbers, and a handful of employee bios, is not the type of vetting you should be doing when making a decision of this magnitude.

In the next post, we’ll explore how the ROI model the BPO proposed might not really hold up to real-world applicability.

Part 4: Does Your Procurement BPO Take The "Strategic" Out Of Strategic Sourcing: Part 4 – The Real ROI Of A Procurement BPO
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William Dorn

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