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1. Procure to Pay Outsourcing
One size does not fit all
WNS Insights | Procure to Pay Outsourcing | WNS Global Services

2. Procure to Pay Outsourcing
One size does not fit all
The hype about procurement outsourcing has examination of the best strategy to obtain value
been in the industry for some time. from procurement outsourcing given particular
The management processes within and around characteristics of the organization, including
corporate spend – whether direct or indirect – level of globalization, drivers of growth, and
have been a tantalizing cost target for clients status of technology.
and providers alike. Touted as the “next big
thing” for aggressive cost reduction for almost As much as the outsourcing industry and the
five years, the promise of a stream of benefits clients we serve strive to industrialize solutions,
far in excess of the cost of service looms large each company comes to outsourcing
in the sourcing strategy roadmap. procurement processes based on a differing
hierarchy of needs. Some look to standardize
Most companies testing the procurement and harmonize processes, while others seek to
outsourcing waters start with procure to pay finance and move to next generation technology
processes (P2P) rather than encompass the under the guise of outsourcing. Some look to
more strategic source to pay continuum. augment their teams or access better skill sets,
The premise of this Insight is that a one size while others seek to use an outsource
P2P outsourcing solution does not fit all. relationship to elevate controls and ensure
Granted, the industry literature abounds with compliance. As stated earlier, some companies
a range of approaches focused on define procurement outsourcing end to end
People: augmentation or arbitrage through from source to pay, while others start with
business process outsourcing; contract administration, vendor and catalog
Technology: the implementation of corporate management or spend analytics, or cost
wide platforms or enabling tools such as creation through the payables cycle. All of these
portals; and needs are valid: fundamentally, the definition of
procurement outsourcing is elastic. But the
Spend: the use of spend analytics to isolate
governing imperative is quite simply, reduction
cost savings through intelligent negotiations.
or containment of cost.
Research reports further expound on the size of
This paper sets forth the premise that the
the market, potential streams of benefits from
characteristics of an organization suggest the
productivity enhancements, the typology of
tenor of the solution a company should adopt
providers, and the trend toward convergence
when implementing procurement outsourcing,
with finance and accounting also help define
assuming the first and foremost driver is getting
the parameters of the market.
cost out fast. It is the first in a series which
However, these approaches and data points are
analyzes the needs which procurement process
merely tools in the arsenal of P2P outsourcing
outsourcing typically must meet, stratified by
strategy – they do not suggest how, when and in
type of organization, setting forth a straw man
what sequence they are used. Looking at the
approach for starting down the path of
industry, and the successes and failures of the
accelerated value recognition – leveraging three
decision to outsource procurement, it is
vital levers: technology, compliance and
apparent that there is a relationship between
controls, and process automation – regardless of
organizational characteristics and the most
the actual scope of the service.
optimum solution, yet there is virtually no
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3. Procure to Pay Outsourcing
One size does not fit all
The Multi-National Organization
P2P lessons learned for multi-nationals
Disparate technologies and processes by
business line or geography. Unrationalized
platforms due to growth by acquisition. The business case for outsourcing
Substantial volume concentration - two to five procurement must not be made
countries which produce the lion's share of the on labor and process
transaction volume. No centralized procurement improvement alone.
policy. Inability to standardize catalogs due to
The benefits from outsourcing procurement are
the sheer breadth of country presence.
generally as follows: 75% emanate from
sourcing, 20% come from enforcement of
This classification of company has a
compliance, and approximately 5% come from
predilection to approach any business process reduced procurement process costs. Given these
transformation as first and foremost systems ratios, multi-nationals spend an inordinate
program. Inbred into the DNA – as evidenced by amount of time focused on the categories of
continuous ERP implementations, refreshes and benefits with the lowest return. While improving
upgrades, procurement transformation is often the “plumbing'' – straight through processing,
first evaluated as a technology challenge, invoice reconciliation, exception management,
calling for a solution which invests in one and payment is important, the big prize comes
instance of a system, or global standardization from focusing on sourcing.
of platforms, wrapping a business process
outsourcing solution around a capital and Procurement outsourcing forces
people-intensive systems implementation. It is enormous investment in change
the embodiment of pursuing the 100 percent
solution, when the burning platform for
management.
procurement outsourcing is, quite simply, It is second in impact to HR outsourcing based
reduction of costs. on the number of users and stakeholders
involved, and the ultimate benefit comes from
Firstly, this approach is linear by nature. changing consumption patterns and process
The majority of multi-nationals which have compliance to create scale. This has substantial
implications for the implementation of and
adopted full blown procure to pay outsourcing
adherence to policy. In a multi-national
in a sequential manner, the prevailing belief
organization where change affects multiple
being that systems consolidation is a geographies and business lines, all of which
prerequisite to successful transformation of have their own entrenched ways of working,
procure to pay processes. As a result, obtaining minimizing resistance by limiting the amount of
a steady state stream of benefits takes a change lends substantial intrinsic value to
minimum of 2-3 years if the cut-over goes well, levels of compliance.
and often years more if the scope involves a
systematic deployment across all geographies
Analytics as a component of
and business lines, no matter the transaction
volumes, extent of spend under management,
procurement outsourcing is key;
and ROI are in scope. most outsourcing focuses on
technology and lowering the cost
Second, the pursuit of the latest, standard of labor.
technology seems to take on a life of its own.
It is difficult to change business unit or
This approach represents a wholesale
geographic consumption – which drives spend
replacement of all platforms and tools in order
reduction – and execute savings strategies
to move to a single platform. The driver is not
unless the BUs have the facts. This is especially
the leverage of a substantial investment in true in an organization with sovereign
engines and tools, focusing on the fix, filling in geographies or business units; driving
the processing gaps, but rather starting from compliance with the facts is a core strategy in
the change process.
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4. scratch and replicating 80% of the functionality WNS's experience is that there is simpler, faster
available in one or more of the existing path to value for multi-nationals pursuing P2P
platforms. outsourcing solutions. And, given the need for
the acceleration of returns without incurring
Approaching procurement outsourcing as an extensive capital investment and the disruption
ERP-driven endeavor brings into play the need accompanying systems change, the best route
to re-engineer. Not only is the development of may be to follow a 80/80/80 strategy: focus on
new business rules and workflow a corollary of 80 percent of the volumes, pursuing 80 percent
the systems approach, akin to major surgery, of the “gaps” deterring the value in order to
but it is complicated by the fact that the obtain 80 percent of the total return – all
organization is multi-national in structure. achievable within an accelerated time frame.
In the drive to obtain buy-in and integration,
re-engineering requires the participation of a The elements of this value-based approach are
whole host of stakeholders from geographies simple-
and business lines, requiring substantial Approach
investment in resource, and further delaying the An alternative to replacing systems is selective
process in the effort to promote adoption. enhancement whereby rather than wholesale
replacement, existing tools and platforms are
Another predilection of multi-national
optimized. Truth is, procure to pay processes
companies is to implement a pilot before
are in existence, albeit on a range of platforms.
full-scale deployment, also delaying the stream
They may be seen as suboptimal, but they do
of benefits. This strategy is adopted in the
work. Most often, the problem comes from
quest to avoid organizational dissonance by
upgrading interfaces and changing workflow to
developing a proof of concept. Generally trialed
increase compliance rather than base
in smaller geographies with low volumes and
operability. The cost involved in full scale
simple processes, the test often does not work
platform replacement or consolidation may be
out the problems associated with scale,
avoided by leveraging existing assets.
regulation, volume, process complexity and
The mantra for selective enhancement is 'fix
change management. The lessons learned
what is broken, and optimize the rest' based on
from the pilot may not apply to high volume
where the most immediate return can be
geographies with a large range of vendors,
obtained, reduction of human intervention.
users, company codes and non-standard
processes. Process
Rather than invest time and resource in a
The simple fact is that this P2P outsourcing
comprehensive re-engineering of P2P processes
approach involves extensive up-front capital
in the effort to build consensus by adopting
expenditure, lengthy deployment, a substantial
best in breed across the multi-national
investment in internal program management,
landscape, a more rapid path to value is to
all of which are disruptive to the core business.
evaluate processes in the geographies with the
Cost savings and process improvement are
highest complexity and most significant
sequenced post the consolidation, generally
volumes, and replicate the workflow that most
resulting in a two to three year delay in benefits
closely enables a desired end state. The focus is
realization, if realized at all. In effect, the
on the gaps between processes that increase
system change becomes the focus of attention
expensive and time-consuming human
as a prerequisite to fixing the 80 percent of the
intervention, such as handling of all
gaps – which emanate from high levels of
transactions rather than exceptions, rather than
human intervention in several core functions.
reinvention in the form of harmonization.
Specific areas of focus that can be addressed
leveraging agnostic, integrated solution
alternatives include:
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5. Procure to Pay Outsourcing
One size does not fit all
Requisition Process – Typically, the
n
requisition process for both PO and Non-PO P2P lessons learned for multi-nationals
based purchases is cumbersome, incurs high
degrees of errors and exceptions, and requires
extensive mid/back office support. The ability Scale and leverage are critical.
to initiate, route/approve, and manage Small scale pilots in multi-national
requisitions, be it PO or Non-PO based, organizations typically cannot be justified in a
utilizing automated, self service based business case. A global approach to
capture and workflow solutions, can be procurement processes promotes control and
compliance, driving down costs.
accomplished through use of platform
agnostic automation toolsets.
Invoice To Pay (PO/Invoice Management/
n
Outsourcing solely to gain
Reconciliation) – The ability to support the operational efficiency is not
invoice management, reconciliation/matching, justifiable.
exception management, and payment
Technology is a very important enabler but
decisioning is a significant opportunity. change primarily results from the
Typical ERP platforms are transactional implementation of policies which are informed
in nature with limited workflow and/or by better cost and consumption information.
automated means in which to match invoices
accurately. Automated reconciliation and Improved vendor compliance and
payment decision engines via rules based
thresholds are readily available.
accurate billing are drivers of
The aggregation of requests through the use outsourcing value.
of portals and universal worklists, enable the Reducing duplicate payments, unapplied
user community to easily access approval discounts, and misapplied tax rates, especially
requests without resident knowledge of the in cross border supply chains and adhering to
back-end ERP platform. unit pricing impact spend.
Time And Expense, P-Card Support – Similar
n
to the overall Invoice to Pay process, the T&E The challenge of getting
and P-Card automation levels are typically stakeholders on board should not
disparate with most relying on manual means
be underestimated.
to submit, route/approve, and manage
exceptions. Highly automated solutions exist The corporate 'sale' cannot be made on
that enable the creation, compliance, process streamlining alone, or as a path to
greater efficiency. The business case cannot be
approval, and, most important, the labor
driven centrally, and must respond “what's in it
intensive reconciliation and exception
for me?
management functions.
Transaction Controls, Compliance, and
n
The next generation of
Measures – Due to the disparate systems and
the heavy use of manual solutions, visibility
procurement transformation must
into the life of a transaction across the be designed for tax advantage.
enterprise along with the operational Leading multi-nationals are looking at locating
controls/measures necessary to ensure/enforce buying offices in tax advantaged locations, and
consistency and compliance is difficult to developing hybrid insourced / outsourced
ascertain due to the high level of manual structures.
intervention. Through the use of automated
workflow and rules engines, these constraints
are removed, providing a clear path for
adoption, enforcement, and audit.
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6. Deployment Different characteristics of the value
The traditional linear deployment – systems based approach
implementation followed by a pilot then staff
Traditional Value-based
migration concurrent with change management
Strategy Approach
is time-intensive. An alternate strategy is a
Approach Selective
parallel approach – lift and shift 'as is Systematic
Enhancement
processes' concurrent with replication and
Process Reengineer Replicate
optimization of platforms and tools, along with
change management – immediate focus on Linear Parallel
Deployment
compliance, policy and consumption. Approach Approach
Any starting point for deployment should focus Capital Self
Investment
on the 80/20 rule – the business line or Intensive Financing
geography with the most volumes, to move
more quickly to value.
In addition to the value based approach to
operational transformation achieved through
Change leveraging the global operating models, process
Plan and Manage
Organizational Change improvement, and automation within the gap
areas, focus can also turn to spend analytics,
categorization, and bench marking in the
pursuit of higher values from the actual
procurement functions.
Optimize BPO No two clients are alike; indeed no two multi-
Selective Accelerate nationals developed in the same way with the
“Gap” Labor same structure, spans of control or leadership
Solutions Arbitrage
principles. When implementing P2P
outsourcing, especially in these challenging
economic times, the latitude to follow a
Investment traditional approach starting from wholesale
In an era of tight corporate budgets, capital systems change, no longer exist. Looking to link
availability for large scale, traditional platform together best available, filling in the gaps,
changes – even if they are stepped over time – focusing on 80 percent of the volumes and
is virtually impossible. Whether the first stage delivering almost immediate savings through a
in a P2P journey is platform standardization or value-added approach is the name of the game.
full replacement, the program is capital-
intensive. A better option is a self financing
option, one where the immediate savings from
labor arbitrage and eliminating process gaps
provides immediate benefit.
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8. About WNS
WNS is a leading global business process outsourcing company.
Deep industry and business process knowledge, a partnership approach,
comprehensive service offering and a proven track record enables WNS
to deliver business value to some of the leading companies in the world.
WNS is passionate about building a market-leading company valued by
our clients, employees, business partners, investors and communities.
To learn more, please write to us at info@wnsgs.com or visit wns.com