Executive Summary
The procurement outsourcing industry is now maturing and procurement is increasingly looked at as a natural candidate for outsourcing. Benefits such as process cost savings, procurement savings, better compliance and diligence are clearly visible, especially in the first year of the engagement. As a result, the question has changed from “Should we outsource this function?” to “How should we best manage this outsourced function?” It has been observed that benefits gained through procurement start eroding year after year without continuous monitoring and improvement initiatives.
Key factors that companies should focus on to continuously improve outsourcing performance are:
- Value realization, which is more important than SLA compliance
- The relationship of procurement successes and mutual accountability
- Incremental innovation
The foundation of a robust, continuously improving process starts with the structure of the contract itself, and continues into the contract execution and monitoring. This white paper aims to address the set-up of a multi-year procurement outsourcing (PO) engagement and the measurement of key metrics therein, highlighting the challenges that companies face in effectively measuring the same. It recommends a staged and iterative approach to measuring and monitoring performance on metrics which are critical to continued benefit realization.
After each improvement cycle, for tangible benefits to show, the SLAs need to be reviewed so as to identify the ones that need improvement next. Only after this can Stage 2 and Stage 3 be started. Through this iterative process, both parties stand to gain efficiencies and improved levels of service that really matter.