Procurement outsourcing, rising, success, contract

As procurement outsourcing rises, proper partner selection is crucial

According to a report by IDC, the Procurement Outsourcing market is much larger than indicated by public deal announcements alone.

Although a relative newcomer to the BPO world, the procurement function shows promise of becoming a regularly outsourced function over the coming year. To date, the manufacturing industry has been the established leader of the known procurement BPO deal activity of US-based providers, with financial services, retail, and wholesale companies ranking next. IDC estimates that the worldwide procurement outsourcing market was $5.9 billion in 2002 and expects the market to increase at a five-year compound annual growth rate (CAGR) of 15.2% to reach $12B by 2007.

Procurement outsourcing can be a compelling proposition. When done right the value generation can far exceed that delivered by other BPO initiatives. But the key to the success of the deal is in the contract, and the foundations of the contract are in the selection process.

Rick Simmonds, a Partner at Alsbridge, the global Outsourcing, Shared Services, and Offshoring advisory firm recently published an article entitled “Selecting a Procurement Outsourcing Partner in the September edition of European Leaders in Procurement magazine. In the article, Mr. Simmonds states, “When contemplating a procurement outsourcing endeavor, it is important to remember that procurement outsourcing deals are very different from other procurement decisions, because an outsourcing deal is all about co-developing a deal with a partner, not just about choosing a supplier and agreeing upon a price.”

There are a few givens which are not different, and which apply to all complex, high value procurements. However, there are five key selection principles specific to complex outsourcing – or at least more critical to the ultimate success of this kind of deal – that must be applied in order to reap the full rewards of a procurement outsourcing initiative.

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