Will This Purchasing Trend Take Your Job?

PurchTips - Edition # 74 May 3, 2005

By Charles Dominick, C.P.M., SPSM

Will Your Job Be Outsourced?

I recently heard a speaker share some interesting visions of a potentially unwelcome purchasing trend. The speaker was Keven Gray, the Vice President of Strategy for Corporate United - a group purchasing organization that serves Fortune 1000 companies.

By working with the purchasing executives of those companies, Keven learns about purchasing trends before they become trends! I had the chance to ask Keven some questions and share his responses with you.

CD:   Keven, you discussed a potential trend where much purchasing work would be outsourced. Could you tell our readers more about what you foresee?

KG:   Until a short time ago, I believed that a lot of the hype around procurement outsourcing was just that, hype. In speaking with a variety of companies on this topic I am beginning to see real examples of organizations moving procurement work to third parties. Most of the initial efforts have been on the tactical side with buying companies seeking to reduce their administrative burden. Increasingly though we are seeing examples of outsourced strategic sourcing and contract management. This is a function of two important factors; the first is that companies are becoming more focused on their core business and more open to outsourcing peripheral functions. The second is that the supply base has developed significantly over the last five years and features a number of vendors capable of supporting high-quality outsourced strategic procurement efforts.

CD:   What makes you think that this is imminent?

KG:   The fact that leading companies across industries are already doing this is one major indicator. Another, perhaps more important sign is that major players like IBM, Ariba, Accenture, and others are building out their offerings to support this function. These investments are leading to those firms leveraging their c-level contacts to sell outsourced solutions. Eventually, firms with that level of influence will cause a trend to take shape.

CD:   What percentage of large, medium, and small companies do you see this trend affecting?

KG:   I'm not sure that the impact of procurement outsourcing will be affected by the size of a company. It is probably the case that smaller companies feel the administrative and resource sting of supporting in-house procurement more than larger organizations. Furthermore, they are less likely to have the market leverage and commodity expertise found in outsourced providers. These facts lead me to believe that smaller companies will seek out these solutions more aggressively; however, the providers are seeking out the larger companies as customers. As the need is more clearly defined, the supply base will change to accommodate requests from companies of all sizes.

CD:   How do you feel that purchasers can protect themselves from losing their jobs to this trend?

KG:   As with any outsourcing trend, a significant driver is to reduce costs. Unfortunately, reducing headcount is an effective way to meet those goals. In the case of procurement outsourcing, the trend is likely to begin with the administrative, or tactical function as well as the indirect sourcing function. Someone working in one of those capacities today might feel threatened by this trend, but they may be safer than they think. The indirect categories that are most strategic to a company (e.g., benefits, telecom, logistics, etc.) will remain in house (for now), as the initial purpose of outsourcing will be to optimize existing resources rather than to displace them. The categories that are being outsourced are those that are currently going un-managed or under-managed today. As a result, few if any procurement professionals will be displaced. As systems and skills become more robust, many procurement people will move from their current corporate homes to the outsourced providers taking on the workload. The key to remaining in the loop is to do what most quality people are already doing, i.e., staying on the cutting edge of strategic sourcing and commodity knowledge to remain valuable in the market.

Want to learn more about how Corporate United could help your Fortune 1000 company? Feel free to give Keven a call in the US at 440-895-0938.

Spotlight On Professional Development Opportunities

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Project Materials Coordinator - SCM Major Projects Infrastructure
Shell Petroleum Development Company

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Let's Interact!

Want to share your thoughts on today's resource? So do I! Visit "Charles' Purchasing Certification Blog" to read additional thoughts from me and other purchasing professionals and to share your own comments. Simply visit www.NextLevelPurchasing.com/blog

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