The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

June - 2007 - issue > Cover Feature

Procurement Outsourcing: Does India have a play?

Rakesh Mittal
Thursday, May 31, 2007
Rakesh Mittal
Rewind back to 1990, and the troops were busy selling IT Outsourcing & Offshoring. It traditionally started with pictures of Taj Mahal and discussions on Aryabhatta (an Indian mathematician who is supposed to have invented the numeral “Zero”). Year 2000 acted as a catalyst resulting in IT Outsourcing and Offshoring becoming mainstream businesses.

Around 1997-98, call centers & help-desk centers (customer relationship management centers) outsourcing became a rage. At the same time HR outsourcing was being seeded while Finance and Accounts Outsourcing sneaked in as a captive process outsourcing to begin with so that companies could really leverage outsourcing as well as global collaboration as a cost productivity measure.

With so much being outsourced, it appeared that we were reaching the end of road in terms of processes. Everyone seemed to have forgotten the procurement groups spread across various Fortune 1000 companies which could also gain significant efficiencies by being outsourced to companies specializing and focused on this. More so that the Procurement Outsourcing (PO) can be the biggest bang for the buck:

PO has much higher potential savings than other BPO functions
We had a glimpse of the PO wave in a different form in years 1995-2000. It was in the form of emergence of lot of e-consolidators who talked of a web based portal which they claimed was panacea to reduce the costs & problems, which is now remembered (or rather not remembered) as a star-studded flop movie. The real opportunity lies in a combination of several factors which include technology platform & capability, outsourcing methodology, process maturity, industry knowledge delivery capability, live procurement experience on the top of everything associated with change management in outsourcing. Even the typical offshore model might not work as a company with lack of experience in PO might expose the client’s spend, thus running several hundreds of millions of dollars to risk.

Irrespective of Industry verticals, procurement function is something which gives immediate scope in cost reductions, which I am sure that many will argue against. On many occasions companies end up spending almost 40-60 percent of their budget in procuring goods and services. Interestingly, if we study a typical Procurement process flow, we will find that buyers spend almost 60 percent of their time and resources in doing administrative rather than strategic work, which apparently deviates the focus from buyer’s core competency and results in inflating the budget and makes cost reduction a mirage.

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