Is procurement a profit center or a cost center? That’s a debate for another day. However, it is hard to ignore the fact that companies can save millions and millions of dollars in their procurement process. The savings can arise from superior supplier selection, material purchase, risk assessment, and many other factors. These savings are not always evident, and processes such as supplier selection and risk management can get overly complicated. This is where companies need to consult experts in the field of procurement. As a result, they mostly turn towards procurement consultants.
North America and Europe are the most mature markets for procurement consulting services. These regions consist of a number of industry leaders that employ strategic procurement and are moving toward value chain integration. In the APAC region though, buyers are facing intense pressure to improve procurement as it is increasingly becoming an important source of goods and services. Fast-growing operations in countries such as China and India have resulted in the need to improve efficiency in operations.
Talent cost, including salaries, training, and development, is a major cost component for procurement consulting firms. While retention of talent is a top priority in mature markets such as North America and Europe, attracting talent is the focus for service providers in MEA, and it is training and development in APAC. Buyers are increasingly considering that their internal team lacks the capabilities to enhance their procurement strategy. This is expected to significantly increase the outsourcing of strategic sourcing and category management functions. This trend is especially evident in the financial services sector.
Procurement consulting firms have to bear the employee costs including recruiting expenses, employee salary, and benefits which are expected to marginally increase due to inflation and the need to hire skilled professionals. Increasing need for service providers to retain talented consultants are expected to augment the salary costs for service providers. Also, the availability of advanced technology such as ERP software, automation, analytics, and cybersecurity, that enhances end-to-end procurement consulting services has increased service providers’ overall costs.
Companies can save up to 8% of their cost base by adopting a reward-based engagement approach. This way consultants also increase their repeat business and bring innovation in services accessibility. Additionally, category management initiatives such as identification of cost-saving opportunities based on innovation, engagement, and billing can also result in significant cost savings.
Industry best practices
Category managers in this sector are focusing on developing a well-defined strategy to optimize procurement spend. They are identifying cost-saving opportunities such as adopting technologies, collaborating with vendors, and conducting price benchmarking studies to minimize the spend. Additionally, the focus is on developing strategic partnerships, where buyers and suppliers engage in contracts that do not work on incremental costs but are designed flexibly to incorporate prevailing market and pricing trends.