Strategic Sourcing: From Local to Enterprise-wide Services Procurement

This is an excerpt of the original article. It was written for the May-June 2010 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2010

Spring is a time for renewal. It's a time for re-assessing the way we've been doing things and making changes in a manner that ensures forward progress. That's a recurring theme of the articles in the May/June issue of Supply Chain Management Review. With the building blocks in place and the spirit of renewal in full bloom, who knows what level of supply chain excellence can be achieved?

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Just as the role of services in the national economy has expanded significantly in recent years (from 67 percent of total private-sector output in 1980 to 80 percent in 20061), the percentage of companies’ total spending on services has increased dramatically. The 1990s saw a significant increase in services outsourcing—first of IT services and over time extended to other “non-core” services, such as logistics, human resources, accounting, and recruiting. In addition, companies increasingly are turning to outside providers for certain specialized services when they need a particular type of expertise.

Services pose a unique procurement challenge: they are harder to define explicitly and quality is best assessed by the end-user. For these reasons, many organizations tend to procure services locally, rather than by following an enterprise-wide strategy. Yet a local procurement strategy, while it may appear easier to pursue, may not yield optimal results for the organization. Customers may become tied to a particular incumbent supplier and may even specify requirements that only that incumbent can meet. Restoring objectivity to the procurement process is one benefit of developing an enterprise-wide approach.

In addition, a more detailed analysis of spending patterns in this area typically reveals a significant savings opportunity. In today’s economic climate, companies are challenged to find more cost-effective ways of doing business. Our experience across numerous industries and organizations suggests an improvement opportunity of up to 15-20 percent reduction in spending on a given services spending category from an enterprise-wide approach. Unlike other changes in business practices, reductions in spending have a direct impact on the bottom line—and may make the difference in determining whether or not a company can survive.

This article will provide an overview of the key processes used to successfully move an organization from a local to an enterprise-wide services procurement strategy. It includes several examples and case studies to put context around the effort. Finally, we offer a number of “steps to success” to get the enterprise-service procurement initiative moving along the right path.

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