Should you outsource your tail spend management (TSM)? Wildly fair question.
To start the conversation, I’ve observed that most procurement teams have at least explored the option of outsourcing different aspect of their process. I understand the desire to explore the strategy as CPOs see their counterparts in HR, Finance and IT all managing some aspect of both an on-premise and outsourced workload. The concept of not having to allocate internal headcount to a business process, and “in theory” being able to scale on-demand can be very appealing.
Specifically within procurement, the 3 main outsourcing options appear to be:
- Outsourcing while keeping everything local (a consultant remotely logins to complete the task that your team normally would)
- Having an offshore team owned and fully managed by a 3rd party company
- Having an offshore team owned by a 3rd party and managed by procurement.
To dive deeper, I’ve heard every different flavor of how contracts can be structured with outsourced providers. Most commonly, the contracts include guidelines and KPIs around turnaround time, throughput, savings, report, % of accuracy and details around who can influence tools and systems used. Very frequently, I hear complaints about these KPIs not being hit, not easily reported against, or that are too vague which potentially misaligns expectations between the company and the outsourced provider. With that said, I have talked to companies that are very happy with their outsourced provider because they’ve set realistic expectations for what the resources can and cannot do. Inversely, I’ve never met a customer that was thrilled with their savings amount or % that was found by their outsourced tail spend desk.
The bottom line is sourcing purchases across multiple suppliers to receive optimal bids either takes knowledge of the space or a technology that can do the thinking for you.
Here are some of the stages I see customers in on their journey in managing tail spend:
Completely against exploring: “We have the people, processes, and products to effectively and efficiently manage procurement internally. We don’t have a need for outside, non-company badged help.”
Cautious and but open: “Our team handles 95% of the core functions, but I’m not ruling out another option for a low risk area of procurement.”
Open and eager: “I don’t want to add headcount, what are my options and how do I move quickly?”
Recklessly transitioning: “Our team is still trying to figure things out internally, but to make better use of outside resources we’re just going to push it on the offshore bid desk.”
Thoughtfully transitioning: “All software and strategies are evaluated and tested internally, and once we define and clear the process and trusted tools, we’re going to enable our offshore bid desk with specific KPIs to be successful.”
Feeling stuck: “I’m not hitting the expected KPIs but we already moved the business function away from my internal resources, and they’ve picked up additional responsibilities. I’ll be building a team from ground up.”
Evaluating to bring back in house: “We know the BPO is not hitting our KPIs, we’re looking for the right combination of technology and people to get a win.”
Transitioning back in house: “We’re going to keep some very low risk processes with the BPO, but I want our team taking the thought-provoking activities.”
Post outsourced state: “Learned a lot, and down the road could potentially see outsourcing very structured procedures, but happy to have it back under our management.”
Important note: Not every company goes through all of the above stages, most hit 3 or 4 at some point.
Net-net: While outsourcing can be a viable option for processes that are very task oriented, tail spend management (TSM) requires greater automation and optimization. This can include either enabling the outsourced team with technology that automatically expands their capabilities through data or better enabling your internal team and end users with system to simplify and streamline the process with little to no touch. To overly simplify it, you need to use a tail spend management technology to optimize the data and analysis.