Thoughts on Outsourcing, Measuring Procurement

By Susan Avery

March 20, 2013 at 1:46 PM

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: 

  • Is the spend in competitive environment? 
  • Is the spend on contract?
  • Is the company purchasing from the contract?
  • Is the company using a requisition process to purchase goods and services on the contract?
  • Is the company leveraging technology (to manage contracts, track savings)?

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?   



Tags: purchasing indirect Strategic sourcing Outsourcing Supply management Procurement Performance metrics
Category: Blog Post

Susan Avery

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Susan Avery is Chief Editor 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 webcasts. Susan has more than 25 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com. 


Please add a comment

Posted by rikwestbrookfloralcom on
I would like to learn more of "spend under management". Measuring procurements performance is something we are just looking at here.
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