Strategic Sourcing BPO Procurement BPO

This post is part of a series:
Does your Procurement BPO take the "Strategic" out of Strategic Sourcing:
Part 1: A one stop shop for strategic sourcing and P2P
Part 2: Solutioning, the proposed cost model and ROI of a Procurement BPO
Part 3: Adding in Change Management, The Real ROI of Procurement BPO

To recap, in prior posts, we discussed the latest craze to bundle outsourcing of strategic sourcing with your transactional procurement BPO.  We highlighted how they might model a solution and proposal for you, and how, once engaged, they might revise their proposal with some additional “value added” services.   But then, I introduced the idea that this still might not get you to the results you are looking for; and that the ROI model doesn’t really show the true impact outsourcing has to your bottom line.

Let’s go back to Excel and do some more simple calculations.   This time, I’ll take $150 Million in spend that you might outsource.  We’ll reasonably assume that the bulk of it is in highly tactical categories, and the rest split in moderately complex or complex categories that would require more skill, subject matter expertise and category knowledge.  Let’s also assume that the BPO can perform the same as an internal team on the tactical side, but is marginally less talented on the more complex categories.  Don’t worry, I’ll describe why we make that assumption later on in another post.


As you’ll now see above, even a slight change in the quality of the work of the BPO in more complex categories can have such an impact on your total cost that it offsets any and all savings you would have seen by outsourcing in the first place.   I’ve used the term impact above, instead of savings, as you shouldn’t be measuring yourself or your provider on hard dollar savings alone.

Now, I’m actually being kind here.  I’ve seen firsthand that more often than not, many of these BPO providers cannot get to within 4 or 5% of the impact that a properly supported internal team, or an experienced consulting firm could get.  I’m also being really generous by saying that they’ll match a traditional sourcing department’s efforts on the tactical side as well.  The reality is, BPOs very rarely can produce close to what an internal team supported by experienced consultants can achieve.  So, you’re looking for evidence of this, right?   How do I know this?  Well, let’s discuss.

  • Here is the subjective part, you’ll have to take this for what it is; my opion. I know some of the more notable experienced individuals in some of these providers personally, and have been told of the frustrations the delivery teams have expressed in trying to meet the goals outlined in their SOWs and promises that suppliers made for them.  In short, the sales teams over promise and they under deliver.  Not that these are bad people, they just don’t have the support and raw horsepower to accomplish what they need to do with the resources they were allocated by their company.
  • Another subjective one here …   Source One has followed several traditional procurement BPOs into clients and worked the same categories that the BPOs sourced using their own processes.   In those accounts, we still manage to find, on average, 6-10% additional HARD-DOLLAR savings, beyond what the BPO provided.  We also find, in many cases, suppliers are not satisfied with the relationships they have with their clients once a BPO has taken over.
  • But outside of my opinion, let’s think about the procurement/sourcing industry holistically for a moment.  I think we’ve all experienced that there is an extreme lack of qualified sourcing and procurement experts right now.   The profession, as a whole, is still relatively new.  If you look beyond the old traditional “buyer” type roles, there really is a big shortage of category experts, procurement analysts and the like.   More so, consulting firms, HR departments at big companies, and BPOs alike are all grabbing at those same resources right now.    So, even looking at those higher-priced onsite category managers that your BPO proposed, know that the real “cream of the crop” are likely writing their own tickets and landing much more desirable positions than at a BPO or might even be going the freelance route.  So, in short, the best resources often will be found in places other than traditional BPOs.
  • But it’s not all about having the best people, right?  If the BPO has good controls, good processes, and a bench of tools/resources at their disposal; it can easily allow them to operate in a more cost effective way than just looking at their payroll costs.   While, yes, this is true; the reality of it is much different in practice (at many of the BPO firms).   But unfortunately, the lean low-cost nature of these BPOs instead exaggerates BAD sourcing practices and poor business processes.   Let me explain, because I see a lot of this first hand. Ironically, even though Source One is a provider of some competing services, we are the frequently the beneficiary of seeing first-hand; the quality of work that some of the more notable companies in this industry produce.  You see, some of these companies; acting as outsourced providers to their customers; send us RFIs and RFPs for services they are looking to acquire for their clients.   RFP and RFI is a strong term though, what I really mean to say is that they are sending us one my my most despised procurement outputs, and one of my favorite topics to blog about: RFP Spam.
What is RFP Spam you ask?  Glad you asked.  I’ll write more on this topic on my next post.
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William Dorn

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