By Susan Avery
At the Purchasing Management Association of Boston (PMAB) monthly membership meeting in March, I interviewed one of the presenters, Chris Sawchuk of The Hackett Group. Sawchuk is Principal, Procurement Advisory Practice Leader at Hackett. The Hackett Group is a valued partner to My Purchasing Center, regularly contributing articles and research as well as expertise for webcasts.
During our discussion (which we recorded on video and is available for viewing at My Purchasing Center) Sawchuk talked about procurement outsourcing, a practice that is starting to grow at some companies.
“Our expectation is that more procurement organizations will be allocating and outsourcing a higher percentage of activity, up to 40%, to a third party,” Sawchuk told My Purchasing Center. Transactional activities and management of some categories of indirect spend are likely candidates for outsourcing “areas where procurement doesn’t create competitive differentiation,” he says.
The discussion brings to mind an earlier conversation with Mark Power, Senior Vice President, Sourcing Solutions and Ray Baker, Director of Sales, at Xchanging Procurement Services. Xchanging, provides business processing, technology and procurement services internationally for customers across multiple industry. A sponsor of the ProcureCon Indirect East event held in Charlotte last month, Xchanging caught up with My Purchasing Center by phone after the conference.
While some procurement and supply management professionals may find the idea of outsourcing parts of the function scary, Baker and Power assure me that it’s not usually the intent of management to reduce headcount. As they see it, outsourcing some capabilities especially as procurement becomes more involved in managing spending of some indirect categories helps companies to make better use of their resources.
As is often the case, “people find their new roles more fulfilling,” Power tells My Purchasing Center. “They get to leverage our tools and category expertise, and they find procurement more rewarding.”
During our call, we talked about Xchanging's capabilities and procurement’s evolving role in sourcing indirect categories of spend and eventually hit upon the topic of measuring performance, which is always of interest to procurement professionals. When procurement becomes involved in sourcing some indirect categories--especially services--it doesn’t seem to make sense for companies to use traditional metrics such as cost savings.
In fact, many procurement professionals say they can’t approach functions such as Human Resources, Marketing or Legal with the thinking that they are going to help reduce costs. HR, Marketing, Legal and other functions use other metrics to assess performance, such as delivery of services.
More generally, there is one metric that some companies use to measure procurement performance--spend under management--and it has received some attention recently. But what exactly does that mean? How does it measure procurement's value contribution to the organization?
As Xchanging’s Power and Baker tell My Purchasing Center, as a performance metric, spend under management, entails more than procurement assuming responsibility for the buy. Power, who has years of procurement experience, suggests that spend under management is much more encompassing, and that organizations consider these points when using the term spend to measure procurement performance:
Positive responses to these questions will help provide a clearer picture of spend under management and of procurement performance in the organization.
We want to hear from you--what do you think about the growing trend toward outsourcing certain procurement capabilities? What do you think are good metrics to measure procurement performance--especially on the indirect side? Is spend under management a good indicator of procurement performance?
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
A new report, Is Your Luck Running Out? Managing Supply Risk in Uncertain Times, by A.T. Kearney and Rapid Ratings International, describes the current state of procurement involvement in supply chain risk management activities, potential risks that … Read More
SMART by GEP
Sponsored Content. In too many companies, too many resources are spent on inefficient processes. Automating the processes frees procurement and others from mundane and repetitive tasks. Scary? It shouldn’t be. Read More
By definition strategic sourcing is a systematic core process within the larger function of supply chain management that encourages purchasers to plan, manage, and develop the supply base in line with a firm’s strategic objectives. This is accomplish… Read More
Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More
It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More
Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More
At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More