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Procurement outsourcing- The Next big thing?

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  • 1. Procure to Pay Outsourcing One size does not fit all WNS Insights | Procure to Pay Outsourcing | WNS Global Services
  • 2. Procure to Pay Outsourcing One size does not fit all The hype about procurement outsourcing has examination of the best strategy to obtain value been in the industry for some time. from procurement outsourcing given particular The management processes within and around characteristics of the organization, including corporate spend – whether direct or indirect – level of globalization, drivers of growth, and have been a tantalizing cost target for clients status of technology. and providers alike. Touted as the “next big thing” for aggressive cost reduction for almost As much as the outsourcing industry and the five years, the promise of a stream of benefits clients we serve strive to industrialize solutions, far in excess of the cost of service looms large each company comes to outsourcing in the sourcing strategy roadmap. procurement processes based on a differing hierarchy of needs. Some look to standardize Most companies testing the procurement and harmonize processes, while others seek to outsourcing waters start with procure to pay finance and move to next generation technology processes (P2P) rather than encompass the under the guise of outsourcing. Some look to more strategic source to pay continuum. augment their teams or access better skill sets, The premise of this Insight is that a one size while others seek to use an outsource P2P outsourcing solution does not fit all. relationship to elevate controls and ensure Granted, the industry literature abounds with compliance. As stated earlier, some companies a range of approaches focused on define procurement outsourcing end to end People: augmentation or arbitrage through from source to pay, while others start with business process outsourcing; contract administration, vendor and catalog Technology: the implementation of corporate management or spend analytics, or cost wide platforms or enabling tools such as creation through the payables cycle. All of these portals; and needs are valid: fundamentally, the definition of procurement outsourcing is elastic. But the Spend: the use of spend analytics to isolate governing imperative is quite simply, reduction cost savings through intelligent negotiations. or containment of cost. Research reports further expound on the size of This paper sets forth the premise that the the market, potential streams of benefits from characteristics of an organization suggest the productivity enhancements, the typology of tenor of the solution a company should adopt providers, and the trend toward convergence when implementing procurement outsourcing, with finance and accounting also help define assuming the first and foremost driver is getting the parameters of the market. cost out fast. It is the first in a series which However, these approaches and data points are analyzes the needs which procurement process merely tools in the arsenal of P2P outsourcing outsourcing typically must meet, stratified by strategy – they do not suggest how, when and in type of organization, setting forth a straw man what sequence they are used. Looking at the approach for starting down the path of industry, and the successes and failures of the accelerated value recognition – leveraging three decision to outsource procurement, it is vital levers: technology, compliance and apparent that there is a relationship between controls, and process automation – regardless of organizational characteristics and the most the actual scope of the service. optimum solution, yet there is virtually no 1
  • 3. Procure to Pay Outsourcing One size does not fit all The Multi-National Organization P2P lessons learned for multi-nationals Disparate technologies and processes by business line or geography. Unrationalized platforms due to growth by acquisition. The business case for outsourcing Substantial volume concentration - two to five procurement must not be made countries which produce the lion's share of the on labor and process transaction volume. No centralized procurement improvement alone. policy. Inability to standardize catalogs due to The benefits from outsourcing procurement are the sheer breadth of country presence. generally as follows: 75% emanate from sourcing, 20% come from enforcement of This classification of company has a compliance, and approximately 5% come from predilection to approach any business process reduced procurement process costs. Given these transformation as first and foremost systems ratios, multi-nationals spend an inordinate program. Inbred into the DNA – as evidenced by amount of time focused on the categories of continuous ERP implementations, refreshes and benefits with the lowest return. While improving upgrades, procurement transformation is often the “plumbing'' – straight through processing, first evaluated as a technology challenge, invoice reconciliation, exception management, calling for a solution which invests in one and payment is important, the big prize comes instance of a system, or global standardization from focusing on sourcing. of platforms, wrapping a business process outsourcing solution around a capital and Procurement outsourcing forces people-intensive systems implementation. It is enormous investment in change the embodiment of pursuing the 100 percent solution, when the burning platform for management. procurement outsourcing is, quite simply, It is second in impact to HR outsourcing based reduction of costs. on the number of users and stakeholders involved, and the ultimate benefit comes from Firstly, this approach is linear by nature. changing consumption patterns and process The majority of multi-nationals which have compliance to create scale. This has substantial implications for the implementation of and adopted full blown procure to pay outsourcing adherence to policy. In a multi-national in a sequential manner, the prevailing belief organization where change affects multiple being that systems consolidation is a geographies and business lines, all of which prerequisite to successful transformation of have their own entrenched ways of working, procure to pay processes. As a result, obtaining minimizing resistance by limiting the amount of a steady state stream of benefits takes a change lends substantial intrinsic value to minimum of 2-3 years if the cut-over goes well, levels of compliance. and often years more if the scope involves a systematic deployment across all geographies Analytics as a component of and business lines, no matter the transaction volumes, extent of spend under management, procurement outsourcing is key; and ROI are in scope. most outsourcing focuses on technology and lowering the cost Second, the pursuit of the latest, standard of labor. technology seems to take on a life of its own. It is difficult to change business unit or This approach represents a wholesale geographic consumption – which drives spend replacement of all platforms and tools in order reduction – and execute savings strategies to move to a single platform. The driver is not unless the BUs have the facts. This is especially the leverage of a substantial investment in true in an organization with sovereign engines and tools, focusing on the fix, filling in geographies or business units; driving the processing gaps, but rather starting from compliance with the facts is a core strategy in the change process. wns.com | 2
  • 4. scratch and replicating 80% of the functionality WNS's experience is that there is simpler, faster available in one or more of the existing path to value for multi-nationals pursuing P2P platforms. outsourcing solutions. And, given the need for the acceleration of returns without incurring Approaching procurement outsourcing as an extensive capital investment and the disruption ERP-driven endeavor brings into play the need accompanying systems change, the best route to re-engineer. Not only is the development of may be to follow a 80/80/80 strategy: focus on new business rules and workflow a corollary of 80 percent of the volumes, pursuing 80 percent the systems approach, akin to major surgery, of the “gaps” deterring the value in order to but it is complicated by the fact that the obtain 80 percent of the total return – all organization is multi-national in structure. achievable within an accelerated time frame. In the drive to obtain buy-in and integration, re-engineering requires the participation of a The elements of this value-based approach are whole host of stakeholders from geographies simple- and business lines, requiring substantial Approach investment in resource, and further delaying the An alternative to replacing systems is selective process in the effort to promote adoption. enhancement whereby rather than wholesale replacement, existing tools and platforms are Another predilection of multi-national optimized. Truth is, procure to pay processes companies is to implement a pilot before are in existence, albeit on a range of platforms. full-scale deployment, also delaying the stream They may be seen as suboptimal, but they do of benefits. This strategy is adopted in the work. Most often, the problem comes from quest to avoid organizational dissonance by upgrading interfaces and changing workflow to developing a proof of concept. Generally trialed increase compliance rather than base in smaller geographies with low volumes and operability. The cost involved in full scale simple processes, the test often does not work platform replacement or consolidation may be out the problems associated with scale, avoided by leveraging existing assets. regulation, volume, process complexity and The mantra for selective enhancement is 'fix change management. The lessons learned what is broken, and optimize the rest' based on from the pilot may not apply to high volume where the most immediate return can be geographies with a large range of vendors, obtained, reduction of human intervention. users, company codes and non-standard processes. Process Rather than invest time and resource in a The simple fact is that this P2P outsourcing comprehensive re-engineering of P2P processes approach involves extensive up-front capital in the effort to build consensus by adopting expenditure, lengthy deployment, a substantial best in breed across the multi-national investment in internal program management, landscape, a more rapid path to value is to all of which are disruptive to the core business. evaluate processes in the geographies with the Cost savings and process improvement are highest complexity and most significant sequenced post the consolidation, generally volumes, and replicate the workflow that most resulting in a two to three year delay in benefits closely enables a desired end state. The focus is realization, if realized at all. In effect, the on the gaps between processes that increase system change becomes the focus of attention expensive and time-consuming human as a prerequisite to fixing the 80 percent of the intervention, such as handling of all gaps – which emanate from high levels of transactions rather than exceptions, rather than human intervention in several core functions. reinvention in the form of harmonization. Specific areas of focus that can be addressed leveraging agnostic, integrated solution alternatives include: 3
  • 5. Procure to Pay Outsourcing One size does not fit all Requisition Process – Typically, the n requisition process for both PO and Non-PO P2P lessons learned for multi-nationals based purchases is cumbersome, incurs high degrees of errors and exceptions, and requires extensive mid/back office support. The ability Scale and leverage are critical. to initiate, route/approve, and manage Small scale pilots in multi-national requisitions, be it PO or Non-PO based, organizations typically cannot be justified in a utilizing automated, self service based business case. A global approach to capture and workflow solutions, can be procurement processes promotes control and compliance, driving down costs. accomplished through use of platform agnostic automation toolsets. Invoice To Pay (PO/Invoice Management/ n Outsourcing solely to gain Reconciliation) – The ability to support the operational efficiency is not invoice management, reconciliation/matching, justifiable. exception management, and payment Technology is a very important enabler but decisioning is a significant opportunity. change primarily results from the Typical ERP platforms are transactional implementation of policies which are informed in nature with limited workflow and/or by better cost and consumption information. automated means in which to match invoices accurately. Automated reconciliation and Improved vendor compliance and payment decision engines via rules based thresholds are readily available. accurate billing are drivers of The aggregation of requests through the use outsourcing value. of portals and universal worklists, enable the Reducing duplicate payments, unapplied user community to easily access approval discounts, and misapplied tax rates, especially requests without resident knowledge of the in cross border supply chains and adhering to back-end ERP platform. unit pricing impact spend. Time And Expense, P-Card Support – Similar n to the overall Invoice to Pay process, the T&E The challenge of getting and P-Card automation levels are typically stakeholders on board should not disparate with most relying on manual means be underestimated. to submit, route/approve, and manage exceptions. Highly automated solutions exist The corporate 'sale' cannot be made on that enable the creation, compliance, process streamlining alone, or as a path to greater efficiency. The business case cannot be approval, and, most important, the labor driven centrally, and must respond “what's in it intensive reconciliation and exception for me? management functions. Transaction Controls, Compliance, and n The next generation of Measures – Due to the disparate systems and the heavy use of manual solutions, visibility procurement transformation must into the life of a transaction across the be designed for tax advantage. enterprise along with the operational Leading multi-nationals are looking at locating controls/measures necessary to ensure/enforce buying offices in tax advantaged locations, and consistency and compliance is difficult to developing hybrid insourced / outsourced ascertain due to the high level of manual structures. intervention. Through the use of automated workflow and rules engines, these constraints are removed, providing a clear path for adoption, enforcement, and audit. wns.com | 4
  • 6. Deployment Different characteristics of the value The traditional linear deployment – systems based approach implementation followed by a pilot then staff Traditional Value-based migration concurrent with change management Strategy Approach is time-intensive. An alternate strategy is a Approach Selective parallel approach – lift and shift 'as is Systematic Enhancement processes' concurrent with replication and Process Reengineer Replicate optimization of platforms and tools, along with change management – immediate focus on Linear Parallel Deployment compliance, policy and consumption. Approach Approach Any starting point for deployment should focus Capital Self Investment on the 80/20 rule – the business line or Intensive Financing geography with the most volumes, to move more quickly to value. In addition to the value based approach to operational transformation achieved through Change leveraging the global operating models, process Plan and Manage Organizational Change improvement, and automation within the gap areas, focus can also turn to spend analytics, categorization, and bench marking in the pursuit of higher values from the actual procurement functions. Optimize BPO No two clients are alike; indeed no two multi- Selective Accelerate nationals developed in the same way with the “Gap” Labor same structure, spans of control or leadership Solutions Arbitrage principles. When implementing P2P outsourcing, especially in these challenging economic times, the latitude to follow a Investment traditional approach starting from wholesale In an era of tight corporate budgets, capital systems change, no longer exist. Looking to link availability for large scale, traditional platform together best available, filling in the gaps, changes – even if they are stepped over time – focusing on 80 percent of the volumes and is virtually impossible. Whether the first stage delivering almost immediate savings through a in a P2P journey is platform standardization or value-added approach is the name of the game. full replacement, the program is capital- intensive. A better option is a self financing option, one where the immediate savings from labor arbitrage and eliminating process gaps provides immediate benefit. 5
  • 7. About WNS WNS is a leading global business process outsourcing company. Deep industry and business process knowledge, a partnership approach, comprehensive service offering and a proven track record enables WNS to deliver business value to some of the leading companies in the world. WNS is passionate about building a market-leading company valued by our clients, employees, business partners, investors and communities. To learn more, please write to us at info@wnsgs.com or visit wns.com