CPO Shop Talk: (1) Procurement Outsourcing (2) Getting Started

Shop Talk. Sharp Talk. CPO Shop Talk. From time to time I will attempt to share some of the less-formal conversations that I have with Chief Procurement Officers and CPO-types through the course of my research, travels, and (forthcoming) analyst/advisory business on the pages of CPO Rising. CPO Shop Talk is not intended to be the final word on a given topic. Ideally, I hope these posts can serve as a quick way to share issues that procurement leaders are currently focused on and draw out (in the comments section) insights and views from our collective experiences to help them.

Unlike my college roommate who gets to talk shop each week with different pros, the conversations that I share are not held in front of millions of television viewers (not yet, anyway). No, “CPO Shop Talk” discussions may be held with one or more procurement leaders casually over a meal, or at a meeting or event, during a research or advisory project, or on an ad hoc call. Another difference between CPO Rising and This Old House? IMHO, the conversations shared here are about a much different and frankly much more important and interesting topic, don’t you agree???? – PBS producers? Your move!

Last week brought me to Atlanta and Chicago for events sponsored by Zycus and StarCite and in the course of these events, I had many great conversations, two of which I’ll share here.

1) Procurement Outsourcing – I believe that the concept of a “New Normal” business cycle creates an operating environment that plays to the skills and capabilities of a procurement organization. I also believe that it creates an environment with much smaller margins of error and an environment that, for many enterprises, requires every stone to be turned. One big stone is the own/outsource analysis that will be applied to many process or functional areas over the next few years, procurement included. A lunchtime conversation turned serious with two procurement leaders who find themselves in the midst of a project where a third-party consultant is evaluating the P2P operations of their company to determine if outsourcing these areas is a viable strategy. The consultant is working on behalf of the company’s CFO; the consultant also offers P2P outsourcing services (more on that in a minute). Now despite the occasional smoldering, full procurement and accounts payable (“AP”) BPO (business process outsourcing) have never caught fire. Certainly there are a few highly-publicized deals each year where an enterprise outsources its entire procurement and/or AP department. Far more likely to occur, however, is the outsourcing of a sub-process (in procurement, think PO processing; in AP, think invoice receipt and system entry) or outsourcing a commodity area(s) in procurement.  Now, depending on the specific situation of the enterprise and its business, the procurement department and its maturity, and the professionals and their roles, the discussion could focus on the best way to facilitate procurement outsourcing or the best way to defend against it. In either case, before moving forward to outsource, a very clear analysis should be performed and its assumptions should be aggressively tested. A few of my comments from the discussion:

• When a consultant that offers services in a specific area is asked if its client needs those services, the Magic 8-ball answer will almost surely be “All Signs Point to Yes.”
• Is procurement (and/or AP) a critical business process to the enterprise?
• Can you or should you start small in procurement? – Perhaps, focus on outsourcing a sub-process area to better understand the outsourcing roll-out process.
• Can you or should you go all in with AP? Should you take months in a fully manual environment to determine a current state baseline if you can reasonably determine that you are not efficient today?

Procurement outsourcing, in and of itself, is not evil. In certain circumstances it can drive huge value; in others, it can undercut critical business results. As technology continues to shrink the world, it will gain more traction. We’ll continue to follow the outsourcing issue/trends and weigh in from time to time. Ultimately, I think this discussion should serve as a cautionary tale for those CPOs and departments that are either resting on their laurels or believe that their department is not on the outsourcing radar screen.

2) Getting Started – I bumped into many readers of CPO Rising last week and fell into a discussion with one reader who had come across the site while doing some research on procurement. He is not a procurement leader by trade, but rather, someone in charge of a special project: To make the case for building a Best-in-Class procurement department (my kind of project!). This “family-run” multi-billion dollar business had grown so significantly over the past decade that cost/spend/supply management was nary a consideration. With business still strong, the company’s president recently made the determination that a formal procurement department and one led by a Chief Procurement Officer could significantly impact the company’s business over the next few years and bolster it when times (for this company) get tougher. Assuming that a business case can be made successfully, the scope of this project also includes the development a roadmap to actually hire and develop a Best-in-Class department. This is actually a fascinating case study and the scope of the project warranted much more time than what was available; we plan to reconnect soon. In the interim, I’d like to open it up to see what ideas exist for the prioritization of steps in building out a Best-in-Class procurement organization? Where would you start? Do you hire the General first or several Majors? Should you leverage third-party consultants or can an internal team drive this? What questions should be asked? And, how would you answer them?

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