At the Spring SIG Summit, TPI and the Sourcing Interests Group (SIG) partnered to conduct a survey on the nature of the procurement organization today and in 2012. The research provided a number of revealing insights on changes and emerging themes in our profession:
1. Procurement shared services is different from other shared services.
Leading non-procurement shared services organizations tend to be structured in a manner to mirror many of the characteristics of third-party relationships (e.g., outsourcing) while retaining the benefits of being part of the company. For example, shared services are set up to provide economies of scale and the benefits of best practices to their internal client organizations in a scalable and flexible model. These organizations are often funded by a “chargeback” for their services, which allows them to respond to internal demand under committed service levels that are defined in an internal contract-like agreement between the shared services organization and the client organization. In this model, the benefits of retaining the function internally include the retention and protection of sensitive company intellectual property, the avoidance of a layer of profit that would otherwise have been paid to a third party, a perceived greater level of control, avoidance of the negative publicity associated with outsourcing, and sometimes the ability to satisfy certain regulatory requirements.
According to the TPI/SIG research, self-described “procurement shared services” organizations show a dramatically low use of service level agreements and chargeback mechanisms with their internal client organizations. These two traits are among the bellwethers of a traditional shared services definition.
Some possible reasons that procurement is different could include i) strong impulses outside of procurement to hold on to certain procurement activities; ii) demand for procurement’s services can vary, unlike demand for less controversial functions such as accounts payable or payroll; iii) utilization of procurement is often “imposed by policy” to achieve corporate savings and compliance goals; iv) a corporate desire to fund procurement independent of client demand; and/or v) the traditional culture of many procurement organizations.
Perhaps these are appropriate reasons to be different, however best-in-class procurement organizations recognize that they can deliver the highest degree of impact if they are seen as a trusted partner. To this end, greater sophistication and collaboration is required with client business units in order to move away from the “corporate mandate” mindset.
2. There is a move toward more balanced globalization in procurement.
While currently about 75 percent of surveyed organizations report that 20-30 percent of their procurement is conducted offshore, the majority of organizations indicate that they will be in the 30-60 percent range in 2012. The implication of this shift is a need for increased skills in managing global teams and integrated service delivery comprising internal and sourced components. Unfortunately, many procurement professionals remain parochial in their perspective and lack experience in managing in a global environment. Participation in organizations like SIG can be a powerful method to inculcate a greater organizational awareness and build a global leadership capability.
3. Use of procurement outsourcing will double.
Sixteen percent of respondents are currently outsourcing 10 percent or more of procurement capability, and 31 percent plan to outsource by 2012. This dramatic shift is consistent with TPI’s procurement outsourcing prevalence research, which tracked 83 procurement outsourcing signings in 2009. This amount of contract activity represented a 43 percent increase in signings below the US$25 million total contract value (TCV) threshold and a 25 percent increase in signings above US$25 million in TCV!
4. There are significant gaps in supplier management versus other areas of procurement in terms of both tools and oversight.
Supplier management remains approximately 70 percent more decentralized than outsourcing management and a minimum of 60 percent more decentralized than any other vendor life cycle activity. On the procurement technology side, adoption of supplier management tools is below 25 percent, which is - less than half the adoption rate of any other procurement application. Additionally, 48 percent of the users of supplier management tools are “somewhat dissatisfied” or “unsatisfied” with the tools. This compares with satisfaction rates closer to 75 percent for other procurement tools such as eRFX, order processing and contract management applications. Clearly, the industry must develop enhanced supplier management strategies, tools and capabilities, as this is currently the weakest link.
5. Respondents believe that systems will be significantly more integrated in 2012.
Organizations that learn to better utilize technology are likely to achieve higher efficiency, effectiveness and reduced costs. Generally, migration away from unique approaches and toward greater industry standardization can provide better potential for integration. Established procurement tools such as Ariba, Emptoris, Iasta, and SAP have continued to add functionality and integration. Additionally, new options including Cloud/SaaS approaches (Ariba-On-Demand, Coupa, etc.) and “platform-based” BPO that leverage third-party expertise can accelerate technology efficiencies by providing effective “one-to-many” solutions.
As leading procurement organizations consider where they will need to be in the next 24 months it will be critical to understand the implications of these trends and to ensure that an understanding informs their organizational strategy.
Bill Huber is Director of CPO Services with TPI, the world’s largest sourcing data and advisory firm. To learn about the TPI/SIG research study or any procurement sourcing topic, e-mail Bill or call him at
+1 540 318 0124.