Managed Services: Scaling Your Procurement Strategy

As your business grows or adjusts to industry changes, scaling your procurement strategy quickly and efficiently is crucial. Yet, building a strong procurement function often requires resources that many companies lack.

This is where Managed Services can step in and leverage specialized teams to support your needs. Managed Services entails engaging an external party to help oversee procurement. The agreement enables the provider to execute procurement processes. This type of support can result in immediate and effective advantages, enhancing your overall procurement function.

To better understand Managed Services’ role in driving business growth, Arroyo Strategy is presenting its Insights series, “Mastering Managed Procurement Services.” We’ll lend our expertise to help your procurement service organization navigate this growing service offering. We’ll also provide a comprehensive introduction to the world of procurement Managed Services, exploring its core competencies, components, and pivotal role in your procurement success strategy and long-term growth in 2024 and beyond.

How do third-party service providers integrate with your procurement team?

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.

What are the different types of engagement models?

In the ever-changing world of procurement, customized and bespoke solutions are essential. As organizations grow more complex, flexible engagement models have emerged. These models customize procurement services to match each organization’s specific needs and goals to drive change effectively.

Examples of leading engagement models include:

Functional design model	Ad-hoc resource model	Category-based resource model
A functional design model offers flexibility by letting companies choose which parts of the procurement cycle to keep in-house—and which to seek the expertise of a Managed Services partner. It enables organizations to keep control of processes that may be more sensitive due to risk, knowledge, or cultural factors. Allows businesses to strategically determine how best to manage, internally or externally, operational processes such as Requisition to Purchase Orders or Contract Creation and Administration and retain Category Management or Contract Negotiation for high-dollar categories. The functional design model allows for the organization to focus on core business areas including Sales, Marketing, or Customer Service, by enlisting the help of a managed services partner for the complete end-to-end procurement process across all categories.	An ad-hoc resource model enables organizations to quickly adjust their procurement support in response to specific needs, providing a rapid response to business needs and project-based, unique skill sets. The ad-hoc resource design allows organizations to easily adjust for shifting business conditions, such as M&A activity or peak seasonal demands or projects. Alternatively, it also allows for a quick dialing down, and controlling the costs the organization incurs, in response to a slowdown in business.	This engagement model is designed to engage a procurement services provider to manage select categories by supporting end-to-end procurement activities within the categories. The client and the procurement services provider jointly set objectives, SLAs, and KPIs for the category, which can be monitored through a robust governance framework. For example: Assigning the complete or partial portfolio of Indirect categories to the service provider to manage and be accountable for all end-end activities such as category strategy development and management, execution of sourcing (RFx) projects, commercial and contract negotiations, and managing operational procurement activities like PR to PO processing and supplier onboarding.

What key challenges do Managed Services Providers help to solve?

Procurement Managed Services providers have expert market knowledge, access to the best tools, and established industry connections. This enables a service provider to function as an agile partner, quickly resolving complex business processes and issues.

Insufficient capacity

Sometimes, daily transactional activities take precedence over important strategic activities such as category planning. Procurement service providers are valuable partners in saving time, as they specialize in streamlining procurement processes efficiently. Companies can shorten procurement times by using a service provider’s knowledge and tools to help them meet and exceed deadlines more effectively.

Resource constraints

A procurement services provider optimizes the use of available resources, unlocking access to a broader network of suppliers and procurement technologies. This allows businesses to stretch their capabilities further than they could independently.

Expertise

Procurement Managed Services providers bring knowledge that organizations may lack and are able to leverage immediately. For example, these providers possess valuable negotiation skills and category market intelligence that can be immediately leveraged by organizations in their upcoming negotiations.

Talent Gaps

Aligning with a procurement service provider offers the unique benefit of being able to quickly address gaps in a company’s infrastructure. A procurement partner can act fast to solve many of the common issues facing an organization, such as:

Innovation Managed Services providers bring fresh perspectives and cutting-edge solutions, fostering innovation within procurement and enhancing business value.
Expertise Procurement experts provide valuable insights to resolve issues and enhance procurement processes effectively.
Capacity Procurement teams recruit top talent to address organizational gaps and seize new opportunities.
Transparency An external service provider can develop and report key performance indicators (KPIs) and increase the visibility of projects through real-time data and service levels’ reporting.

Critical Advantages of Managed Services: Enhancing efficiency and boosting profitability

Implementing a Managed Services strategy provides benefits beyond immediate problem-solving. Partnering with a procurement service provider helps to drive benefits to the bottom line by analyzing procurement processes and eliminating unnecessary time and spend. These benefits include:

Improving operational efficiency

A procurement services provider brings experience, best practices, and innovation to streamline procurement. From automating tasks to optimizing supplier relationships, service providers transform procurement into a lean, agile operation. This creates a more focused and efficient procurement organization that can quickly adapt to today’s fast-paced business world.

Reducing financial waste

Businesses can save money by using service providers’ strategic knowledge and buying power. This means lower costs, better supplier deals, and fewer mistakes in procurement. Efficient strategic sourcing and spending management strategies ensure that every dollar spent contributes to the company’s growth, directly impacting the bottom line.

Partnering with a procurement Managed Services provider offers several unique benefits that can enhance ROI and streamline procurement processes. An efficient procurement system can positively impact the entire client organization and propel the business forward.