Posted June 26, 2024

In Blog, Managed Services, Procurement Consulting, Procurement Consulting and Staffing, Strategic Sourcing

Part Two

Mastering Managed
Procurement Services

The Five Rules of Engagement

To improve the understanding of how Managed Services can help support business growth, Arroyo Strategy is presenting “Mastering Managed Procurement Services.” In this Insights series, we’re providing a comprehensive introduction to the world of procurement Managed Services, exploring how this scaled model can play a pivotal role in your procurement success strategy and long-term growth.

In the first installment of this series, we delved into how a procurement Managed Services provider can help you transform your operations. In this second part, we conclude the series by providing a five-step, actionable roadmap to help you think through where to start and how to effectively develop your relationship with a Managed Services provider.

To make the most of your partnership with a procurement Managed Services provider, you’ll first need to think strategically about the role the provider will play within your organization. You should start by developing clear objectives and an understanding of how your organization could utilize and benefit from such a partnership, what qualities and capabilities your provider should have, what types of engagements might be best to start with, and how your relationship may evolve over time. The following five steps provide a roadmap to an optimal Managed Services provider partnership.

1. Develop your organizational requirements

Effective service providers function as strategic partners to a company’s procurement team. They seamlessly integrate by understanding needs, goals, and strategies, aligning their services offerings with broader business objectives. This ensures that the revamped procurement process supports strategic goals throughout the organization.

A strong partnership helps reach organizational goals through teamwork, clear communication, transparency, ongoing improvement, and shared values. By executing effectively, external Managed Services partners add value to the organization by improving important processes such as purchasing standards and introducing innovative concepts.

Questions to consider at this formative stage include:

How well is your procurement organization meeting its objectives and goals?
How effective is procurement in partnering with business teams to help meet their objectives?
What are the gaps, constraints, and inefficiencies in the processes and operating model of your procurement team that may be prohibiting it from being more effective?
Is your procurement team being strategic in their engagement and approach as they partner with business teams?
Does your team have the appropriate resources, technology enablers, business engagement model, knowledge, and time to play a strategic role?
What specific areas do you need support in from a Managed Services provider to get most value in making your team more effective?
What specific outcomes or improvements are you and your business stakeholders looking for from this partnership?
What information about your organization, objectives, scope, work volumes and challenges should you share with Managed Services providers for them to offer you a well-thought-out solution?

2. Conduct due diligence of potential partners

A good fit between your company and your Managed Services provider is the foundation of a successful partnership. Prior to onboarding a Managed Services provider, it’s essential to conduct an in-depth evaluation of their services, ensuring alignment with your business objectives and culture. The right partner will improve your procurement operations and ROI, but a mismatched partnership can create challenges such as missed goals, ineffective communication, missed opportunities, cultural friction, unhappy stakeholders, and even risk and compliance issues.

When beginning your search for a Managed Services provider, start with the most essential criteria for your business:

Functional expertise: The provider’s functional or domain knowledge and experience in procurement services is the most critical criteria to consider when choosing a partner. As you evaluate the service provider on this criterion get into the details of specific areas of expertise. For example, if the scope you are considering is source to contract execution support focus on understanding the providers’ knowledge and experience in conducting RFPs/RFQs, commercial and contract negotiations including process and methodologies they use and the client programs they have supported with these specific services.
Talent: An organization is only as good as its people. Be sure that the potential Managed Services provider offers experienced procurement professionals with the right level of skills and knowledge. Ideal professionals not only have strong process and execution capabilities but bring a strategic perspective to the projects and processes supported. Beyond procurement knowledge also learn about how the provider manages their talent’s knowledge and career growth as this will impact the quality of services and consistency on the team assigned to your operation.
Industry alignment: Finding a Managed Services provider with a proven record in your industry is vital for harnessing the full advantages of the partnership. This ensures your chosen external partner is knowledgeable about your industry’s nuances while also being able to offer tailored solutions that drive significant value to your operations.
Scalability and flexibility: Selecting a procurement service provider that can seamlessly adapt and scale up or down according to your company’s evolving needs is also essential. To get the benefit of a long-term partner, choose a Managed Services provider that demonstrates the capability and flexibility to adjust their services as your business expands or shifts direction.
Technology: Evaluate whether the provider is not just familiar with but is actively integrating the latest procurement technologies. Their commitment to leveraging innovative tools is a good indicator of their ability to optimize your procurement operations effectively. Your provider should be familiar with operating within your technology stack, and ideally agnostic and flexible to utilize any technology platforms.
Processes: Be sure to partner with a provider with a case history of improving organizations by adjusting their procurement processes. This experience will enable them to deploy improvements to optimize your procurement process.
Service footprint: A Managed Services provider with a broad service footprint can provide nuanced support that aligns with your geographical and market-specific requirements, ensuring that your procurement strategies are both globally informed and locally applicable.
Market intelligence: The ability to tap into up-to-date, relevant market data and trends can give your procurement strategies a competitive edge. Evaluate how a Managed Services provider gathers, analyzes, and utilizes market intelligence to inform procurement decisions and strategies.

3. Choose the area of engagement

The right area of engagement of procurement managed services depends on your organizational maturity. A mature organization can benefit from offshore or a hybrid support model to lower costs, or from focusing on further enhancing procurement’s value to the organization via global strategic sourcing, category, or analytical support. A younger organization can get the most out of their Managed Services provider by jointly establishing procurement policies, processes, augmenting their source-contract execution and procurement operations teams and supply of needed key category knowledge.

As you consider the right areas to engage, think about initiating support in these impactful areas: Source-to-contract (S2C) execution, operational procurement (PR to PO) activities, spend analytics and value reporting, category management support.

Streamlining and managing the source-to-contract process: Your provider can improve the S2C process execution by speeding up the selection, evaluation, award, and engagement process while staying compliant with policy and contractual requirements.
Optimizing and managing the procurement requisition to purchase order process: Tackling this operational process brings value to the organization and improves the service level to the business stakeholders by changing the perception on the ease and time to process their purchase requisition.
Strengthening spend analysis and value reporting: Using advanced analytics, your provider can identify spending patterns and categorize procurement activities, enabling you to focus the investment and energy on the most impactful areas. Also, reporting on Procurement metrics such as savings or cost avoidance, cycle-times, customer satisfaction, and other business impacts can help show Procurement’s true value to the organization.
Category management support: Your category managers may benefit from support with supply market research, analysis of current supply base and planning of sourcing and other improvement projects to manage their categories more effectively.

4. Consider leveraging strategic project support

In addition to identifying the core areas to be supported by your provider, consider whether they can deliver more value via support for large-scale highly visible strategic projects. Often the provider can leverage their experience, expertise, and efficiency to help identify and deliver high impact for your strategic projects/initiatives. Areas to consider include:

Strategic sourcing initiatives: Your provider can often play a more strategic role by supporting the development and execution of strategic sourcing plans and category strategies that align with the company’s long-term goals.
Supplier relationship management: Bringing their specialized industry expertise, your provider can enhance relationships with your organization’s key suppliers to foster collaboration, innovation, and value creation.
Navigating organizational changes: Managed Services providers are often experts in smooth transitions and change management. From M&A to reorganizations, or shifting procurement processes, your procurement partner can guide your procurement team through strategic procurement initiatives while ensuring stakeholder buy-in and seamless transitions.

5. Plan for cultural integration, communication, and change management

Understanding an organization’s culture is paramount for the successful integration of managed procurement services because it fosters alignment with existing values and knowledge. Without that awareness, an effective collaboration can prove elusive. But you’ll need to do your part in bringing your provider up to speed in this respect, which you can do through the following steps:

Communicate your organization’s values: This knowledge and cultural context will enable the provider to develop procurement strategies that align with the company’s goals. For example, if ESG is a priority for your organization, your provider can work to identify eco-friendly suppliers.
Explain the ways you work best: Provide your provider with information about the company’s communication style, decision-making process, organizational culture, to facilitate effective collaboration.
Communication to key stakeholder groups and establishing new ways of working: Engage stakeholder groups, such as key business units, Legal, Risk Management, Finance, IT Security, etc., with whom your managed services provider will be interacting on a regular basis on projects. It is important to establish standard rules of engagement and processes, regular touchpoints, and communication expectations to ensure seamless interactions and hand-offs for successful execution of projects.
Plan for an open, two-way communication channel: Establish clear channels of communication to bring teams’ leadership in alignment from the start. Initial implementation phase requires an open two-way communication to support adjustments in the program execution as well as distribution of new knowledge to and from your provider.

Looking ahead

Knowing exactly how to leverage a managed procurement services partner to best fit the needs of your organization increases the speed of the onboarding process and jumpstarts ROI. From gathering key information and process documentation, to deploying your provider’s resources to the areas they are needed most, setting yourself and your procurement teams up with the tools to leverage your procurement partners is the key to maximizing the benefits of the relationship and drive value, efficiencies, and innovation.

Authors:

Carlos Perico | Senior Director, Arroyo Strategy

Anirudha Roy Chowdhury | Director, Arroyo Strategy

Contributors:

Kathleen M. Pomento, Chief Marketing Officer, Arroyo Strategy