The move to outsource strategic and operational activities is slower than expected according to The 2010 Indirect Procurement Study (IPS) published by global management consulting firm AT Kearney, and previously conducted in 2007.
The 2007 survey reported that executives expected significant growth in outsourcing strategic, tactical and operational activities by 2010, but the expectations have failed to materialise.
According to the results, outsourcing of strategic activities was projected to grow from 1% in 2007 to 12% in 2010; the actual figure is 5%.
Similarly, tactical activities were expected to reach 23% this year (up from 6% in 2007), however, the figure remained unchanged.
As for operational activity, it was predicted this would increase by 30 points from 10% in 2007; actual figures in 2010 is 14%.
“The figures definitely represent a change in direction from three years ago, however this is likely due to a multitude of factors.
“The global recession has impacted funding for new technology, procurement’s visibility in the organisation, the sense of urgency to control this type of spend, and risk aversion,” noted Jan Fokke van Den Bosch, vice president at AT Kearney Procurement and Analytics Solutions.
However, findings show that despite the shortfall of 2007 projections and actual 2010 figures, executives managing indirect procurement have gained substantial influence within their organisations, mostly owed to the financial crisis and recession.
This is positive and indicates that there is room for indirect procurement outsourcing to develop. While today IT and logistics are the categories in which procurement is most active– 68% and 66% of all related spend respectively – looking ahead, the most significant growth is expected in overhead and support with facilities and logistics narrowly behind.
“As with all outsourcing a decision to restructure using external service providers must be based on a valid and balanced business case.
“Factors which favour the development of indirect procurement outsourcing include: a) proven effectiveness and efficiency in a multinational environment b) increased maturity in the strategic level of the indirect procurement organisation and therefore improved management of outsourced operational and tactical activities and c) higher availability of knowledge and skills at providers’ side,” says van Den Bosch.
The survey was conducted among 94 multinational companies across the Americas, Europe and Asia.