![]() ![]() ![]() Commercial management matches the best suppliers to different business needs at the best possible prices and through the best available channels (including e-auctions and RFQs based on cost breakdowns). ![]() Value generation uses commercial management and demand management to inform strategic sourcing.Yet done correctly, it can yield an initial cost reduction of about 15 percent (Exhibit 1)-which translates to a bottom-line improvement of roughly 1.5 percent. Such a transformation requires introducing rigorous management practices, changing deep-rooted mind-sets and behaviors, and building new, next-generation capabilities in areas such as digital procurement. Moreover, a lack of strong relationships within the client organization can impede collaboration, while the transactional focus of many outsourcing relationships tends to inhibit a more strategic approach to optimization.Ī few companies, however, have found that the most effective way to optimize indirect procurement is not simply outsourcing it, but instead transforming the procurement function into a strategic, value-generating arm of the organization. Instead, companies may find that the value captured in the first one or two years of outsourcing falls, before plateauing at a relatively low level. Over time, it can weaken the effectiveness of the procurement function as a whole, without producing the sustained impact leaders may have hoped for. Indeed, outsourcing providers can bring important capabilities and assets to bear, such as domain and functional expertise, knowledge of the market, process discipline, and updated sourcing technology.īut outsourcing raises important risks as well. This article was a collaborative effort by Chetan Ghatge, Patricio Ibáñez, Samir Khushalani, Peter Spiller, and Henrique Teixeira, representing the views of the global Product Development & Procurement Practice.īecause many companies lack the necessary capabilities to address all of the potential opportunities and capture full value from optimizing indirect spend, outsourcing can sound like an appealing option. ![]()
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