BenefitsEmployee Engagement

Supply Management BPO: Think About the Long Term

 The sector has seen a major growth spurt that might not be sustainable, a study cautions.
By Debbie Bolla
Has the lure of short-term cost savings been detrimental to supply management business process outsourcing? While in recent years, the practice has seen a surge of activity—averaging a 30-percent growth rate—have companies failed to consider business transformation because they were clouded by labor arbitrage? Such tough questions were addressed in a recent study by AMR Research entitles, “The 2009 Supply Management BPO Landscape: Short-term Body-shopping Trumps Business Transformation.”
AMR Research unveiled data that showed that the supply management BPO market in 2008 surpassed $1 billion in expenditure for the first time, with 47 new engagements procured. Reasons for such remarkable growth can be attributed to the increased availability  of low-cost offshore services for procure-to-pay and strategic sourcing support. Of those organizations surveyed, 72 percent of services are being delivered from India. A main benefit of cost-cutting labor arbitrage is limited upfront investment, a factor made even more attractive in a depressed economy. Limiting upfront costs by forgoing the opportunity to streamline supply management processes with technology (80 percent have no technology strategy implemented at the onset of the BPO engagement) increases the chances for inefficiencies and hinders the possibility of long-term savings. 

Price points have also been driven down with an increase in offshore providers. The study found that incumbent providers such as Accenture, Capgemini, and IBM have ramped up their offerings, while new players such as Corbus, Infosys, Softtek, Tata Consultancy Services (TCS), Wipro, and WNS have attracted new engagements at low margins.
Most of the back-office components, including some human capital functions and indirect work such as procure-to-pay processes, are being offshored to delivery centers in India, the study noted. The majority of transactions that involve strategic sourcing activities including supplier touch points, compliance reporting, and multilingual needs are handled onshore or at nearshore locations (see Figure 1).
Click here to view Figure 1.
Strategic sourcing processes were found to be competitive differentiators among providers. To complement indirect procure-to-pay processes, more than 50 percent of current supply management BPO engagements feature vendor relationship management, spend data management, contracting, and sourcing implementation activities. Established providers such as Accenture, ICG Commerce, and IBM are broadening these types of services, while Infosys, TCS, and Wipro are developing them to expand their delivery expertise and market share.
But will this segment grow in the long term? The study revealed a likely spike in BPO and IT outsourcing late this year through 2010. But it also warned that engagements need to focus more on process and technology improvements in addition to labor arbitrage cost savings. For example, one multinational Fortune 100 company surveyed had 12 technology systems that covered the majority of supply management business processes, with two of the systems integrated with the supply management BPO provider—increasing transparency and minimizing human errors. Said one chief procurement officer, “Automate everything you can, but don’t wait for technology that’s not available. There’s a place for outsourcing, offshoring, and nearshoring. Use them all, and then eliminate the labor when a technology solution becomes available. Technology provides visibility, streamlined workflows, and transparency.”  

Tags: Benefits, Engaged Workforce, HRO Today Global

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