INDIRECT CATEGORIES

OVERVIEW
HELPING LEADING ENTERPRISES WORLDWIDE ACHIEVE EXTRAORDINARY RESULTS

STRATEGY | SOFTWARE | MANAGED SERVICES Copyright © 2019 GEP. All rights reserved.

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 AGENDA

Agenda 01: What is an Indirect Category

Agenda 02: Definitions

Agenda 03: Some Indirect Categories

Agenda 04: Key Strategies

Agenda 05: Trends

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•What is an Indirect Category

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 What are Indirect Categories

Category that falls under all goods and services for a business that enable its activity, and those are
not directly incorporated into a product being manufactured.

Category that is indirect for one company may be direct for another. Furthermore, segmenting direct
and indirect spend can be very difficult, particularly for service companies.

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Direct Category Vs Indirect Category

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Indirect Spend Categorization

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Indirect Categories

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•Definitions

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 Porter’s Five Force Model
Supplier Power
▪Supplier Concentration
▪Switching costs
▪Number of suppliers
▪Product Differentiation

Threat of New Entrants

▪Entry costs Threat of Substitutes
▪Government Policies ▪Relative price
▪Loyalty level
Intensity of Rivalry ▪Relative quality
▪Aggressiveness ▪Switching cost
▪Control of Supplies

Buyer Power
▪Number of buyers
▪Quality of service
▪Negotiation power

Provides a deeper insight into the Supply Market Copyright © 2019 GEP. All rights reserved. 9
 Pricing Mechanisms

• Cost Plus

• Fixed Pricing

• Index Based

• Performance Based

• Rebate

• Time and Materials

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 Indirect Categories: Pricing Mechanisms and
Contracts

• Pricing mechanisms deployed by category managers tend to be unique to the category;

• However, for many of the services-based categories, such as consulting and marketing, time and materials models in combination
with performance-based techniques dominate;
• Often, short-term contracts tend to be drawn from project-based categories, either raw materials or consulting services, allowing for
more agility on a case by case basis.
Contract lengths between one and three years will be the norm in future Copyright © 2019 GEP. All rights reserved. 11
 Category Wise Expertise & Spend Managed

Facility Management, Maintenance Services, Engineering Services, Industrial Supplies, Environment &
MRO & CAPEX $12.1 B Safety, Co-manufacturing, Fabrication, Manufacturing and Other Equipment, PVF, PTB, HVAC, and Other
MRO Supplies

FTL, LTL, Intermodal, Ocean Freight, Air Freight, Express Mail, Small Packages, 3PL / Warehouse, Fleet
Logistics $10.9 B Management, Others

General & Admin Temp Staffing, Office Supplies, HR & Benefits, Professional Services, Facilities & Real Estate, Fleet
$17.8 B
Services Relocation, Air Travel, Hotels, Rental Cars

Corrugated, Pallets, Stretch / Shrink Wrap, Plastic Bottles, Poly Bags, Folding Cartons, Labels, Glass Jars
Packaging $5.2 B / Caps, Others

Market Research, Media Production, Media Buying, Print & Promotion, Creative Services, FSI, Website
Marketing $6.7 B Development, Comps, Displays

IT & Telecom $10.5 B IT Hardware, Software, IT Maintenance & Support, IT Consulting, IT Outsourcing, Telecom Hardware
Telecom Data & Voice Services

Raw Material & Chemicals, Metals, Plastics, Food Ingredients, Coal, Energy, Textiles, Electronics, Sub-components,
$10.8 B
Direct Finished Goods, Others

*Partial list More than $74 billion in spend annually Copyright © 2019 GEP. All rights reserved. 12
•Some Indirect Categories

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 Indirect Categories: Temporary Staff

The US temporary staffing market has

grown steadily since 2010 and is
predicted to continue to do so moving
into 2016, where its estimated growth
is 6%.

Supplier list:
•Allegis (US): the largest temporary
staffing agency in the US with 6.2%
market share;
• Adecco (Switzerland): makes up 3.5% of The Future:
the market share and as a result is the • The temporary labour market is predicted to experience continuing
second largest agency in the US; strong growth during 2017 as a result of increasing demand for
•Randstad Holding (Netherlands): a flexible working arrangements. According to research by Oxford
Dutch staffing company that makes up Economics and Success Factors, 83% of executives plan to increase
Procurement impact:
3.3% of the market in the US. their use of contingent staffing until 2019.
• Price increases are expected to be above the standard inflation rate, • Utilizing recruitment process
as increasing salaries in emerging markets place increasing upward outsourcing will considerably reduce
pressure on temporary labour salaries. As such, buyers expect costs for hiring temporary staff.
savings to diminish in 2017.

Demand for temporary staff will rise dramatically as attitudes to temporary work improve, and more
skilled roles are filled on a temporary basis Copyright © 2019 GEP. All rights reserved. 14
Indirect Categories: Temporary Staff cont.

Copyright © 2019 GEP. All rights reserved. 15

 Indirect Categories: Office Supplies

SWITCHING COSTS
• The key drivers of switching costs are order
process complexity and the number of
employees with responsibility for ordering.
• Switching cost depend upon demand.

SUPPLIER PRICING STRATEGY

• Complexity reduction - Simplify specification and replace branded items with generic products to achieve savings and consolidate
spend.
• Demand management - Reduce the use of paper-based and ink-related products by introducing digital formats to the workplace. This
will reduce spend on office supplies that require regular replacement or renewal, such as printers, pens and paper.

FUTURE OUTLOOK
• The failed merger between Staples and Office Depot, the market’s two largest suppliers, will affect the competitive nature of the
market and likely ensure prices remain low.
• Prices changes are expected to be slight between 2016 and 2017: less than 1%. Cost Drivers

The average small to mid-size company spends £19,600 a year on office supplies, or 1.6% of its total expenses
Copyright © 2019 GEP. All rights reserved. 16
Indirect Categories: Office Supplies cont.

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 Indirect Categories: Mobile Telecom

The Future: Procurement impact:

• Mobile telecommunications has been frequently identified as major candidate • Negotiation - Buyers expect price drops across many regions. They can exploit
for price deflation and this year is no different, with drops expected across the this as a major opportunity to negotiate on price. But buying organisations can
regions, aside from the US, which frequently bucks the trend. also use their relative strength to extract other benefits, such as innovation or
direct consultancy services.

Globally the prices for the telecom category are expected to fall by an average of 2.6%
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Indirect Categories: Mobile Telecom cont.

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 Indirect Categories: Digital Marketing

The Future: Procurement impact:

• The demand for digital marketing is growing rapidly, with 88% of companies • Specification optimisation - Set value – rather than price – expectations, in order to
worldwide planning to increase their digital marketing budgets during 2016-17. get the most out of a digital agency. Agree with the firm on how to get the best
According to Gartner predictions, in 2017 a company’s chief marketing officer will value out of the campaign and the most cost-effective way of achieving these aims.
spend more on IT than a chief information officer.
• As with many marketing areas, prices are expected to decrease except, notably, in
the US.

Globally the prices for the digital marketing category are expected to fall by an average of 0.2% Copyright © 2019 GEP. All rights reserved. 20
Indirect Categories: Digital Marketing cont.

Copyright © 2019 GEP. All rights reserved. 21

 Indirect Categories: Third Party Logistics

SWITCHING COSTS
Switching supplier may involve using new software packages and IT platforms, which could require
additional staff training hence switching costs are HIGHER.

SUPPLIER PRICING STRATEGY

• More and more 3PLs offer value-added services such as inventory management, product labelling and
packaging, customer service and logistics consulting. This is an attempt to boost profit margins and increase
their clients’ switching costs
• Despite the acknowledgment of collaboration and information
sharing, many 3PLs want to avoid cost details at too granular a level
• High volume is essential for 3PLs to achieve operational efficiency and keep costs low. 3PLs are therefore
keen to promote volume throughput via pricing strategies such as rate discounts.

FUTURE OUTLOOK
•The 3PL market is predicted to grow in conjunction with the continuing global economic recovery and
increasing world trade levels; WTO economists expect world trade to grow by 5.3% in 2015
•Supplier power will rise as demand outpaces available transportation (mainly overland) capacity. This is
the result of ongoing issues regarding infrastructural limitations and a global driver shortage
• 3PL revenue will be increasingly generated in emerging markets over more mature developed markets:

COST Driver: ASSET COST Driver: NON- ASSET

BASED- 3PL BASED- 3PL

Fixed pricing arrangements are the most commonly used in 3PL relationships. Globally the prices for the
3PL are expected to rise by an average of 2.1% Copyright © 2019 GEP. All rights reserved. 22
Indirect Categories: Third Party Logistics cont.

Copyright © 2019 GEP. All rights reserved. 23

 Indirect Categories: Warehousing

SUPPLIER PRICING STRATEGY

• Data Mining - An analysis of optimal warehousing locations, exploring end user requirements
and associated transportation costs.
• Competition - There is a large number of warehousing providers and extensive global capacity
with warehousing markets highly fragmented, especially in emerging regions.

FUTURE OUTLOOK
• Increased warehousing wages are putting pressure on warehouse pricing. Despite this, buyers
are expecting global price decreases of 2.3%. However, in the US, significant price increases are
forecast.
• E-retailing is expected to take a larger share of global shopping and could bring an inflow of
public storage-type corporate contracts.
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Indirect Categories: Warehousing Cont.

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 Warehousing: Cost Structure & Sourcing Strategies

Cost drivers Value Drivers Sourcing Strategies

● Consolidate number of providers

Cost Head % of Overall 3PL Consolidation ● Combine volume of nearby locations to leverage fixed operating costs like
mgmt.
● Bundle all aspects of warehousing 3PL, 4PL to make spend attractive

Fixed Storage, Operating &

35%
Maintenance
Fixed Costs ● Automate Fixed Costs payments for monthly facility maintenance and sanitation
(40%)
Automation ● Investigate cost savings opportunities through WHSE automated
equipment/technology
Management Fees 5%

Variable Operating
● Full Unit ● Benchmark productivity of labor (packers, forklift drivers, VAS personnel,
45% security). Increased productivity can reduce total costs with same labor rates.
Handling Productivity
● Case Pick ● Combine positions where possible
● Eliminate “non value-add“ activities
Other Variable
● Shuttle Rate
10%
● Damage case
handling ● Labor is major cost component. Benchmark to align with local wage market and
Variable Costs renegotiate if significant downturn opportunity arises. Re-adjust wages every 2-
Wage Rates & Benefits
(60%) Special Handling 3 years to avoid inflated tenured wages
● Repacking
3%
● Labeling
● Expect multiple rounds of intense negotiation
● Lock in T&Cs prior to rate negotiations. Share contract boilerplate ASAP in bid to
uncover red flags.
Warehouse Supplies 2% Negotiations
● Get visibility into hidden “mgmt fees”. Separate cost item.
● Establish and contract performance metrics/SLAs
Copyright © 2019 GEP. All rights reserved. 26
 Maintenance Repair & Overhaul (MRO) – Category
Tree
MRO

Power Chemicals Conveyor Industrial

Fluid Power Filtration HVAC Hardware
Transmission & Lubes belting Supplies

• Bearing - general Hydraulics • Air Filters • Oils • Conveyor Parts • Welding / Supplies
• • Nuts
• Fans • Plastic &Rubber products
• Bearing - special • Pneumatics • Water Filters • Greases • Belts
• Bolts • Cleaning utensils
• Valves
• Airbearings • Clamps • Oil Filters • Lubricants • Screws • Tape
• Compressors
• Belts (non-conveyor) • Hoses • Media Paper • Chemicals • Adhesives / Seals
• Pins
• Heat Exchangers
• Gearboxes • Coolants • Janitorial
• Fittings • Telltales • Grommets
• Brushes
• Reducers • Lube Equip • Process Filters • Glycol
• Packaging supplies
• Couplings/Pulleys • Gages • Product filters • Spray equipment
• Rings • Valves • Process filters • Absorbents
• Gear Motors • Paint
• Tubing • Baghouse filters
• Electric Motors • Hand Tools

• Belt Drive Motors • Pneumatic Tools

• Brake Motors • Power Tools

• Seals/Bushings

Electronics & Pipes, Valves Safety Building OEM Mobile

Electrical Pumps
Instrumentation & Fittings Supplies Supplies Spare Parts Equipment

• Circuit Boards
• Valves • Safety products • Electric Pumps •Sand • Batteries
• Controllers
•Electronics • Safety equipment • Centrifugal Pumps •Gravel • Tires
• Transformers • Fittings — pipe
•Instrumentation • Fire equipment • Pneumatic Pumps •Lumber
• Lamps • Pipe — steel • Spark Plugs
• Pump Kits
• Adaptors •Process Controls • Respirators •Paints • Motor Oil
• Pipe — composite
• Wire / Conduit • Ear protection •Structural Mat. • Fork Lift repair parts
• Pipe — plastic
• Fuses • Gloves •Structural Steel • Hoses
• Pipe — nonferrous
• Circuit Breakers • First-aid supplies •Landscaping supplies
• Plumbing
• Switches
• Safety clothes
• Junction Boxes • Strainers
• Detection devices/alarms
• Relays
• Lighting Fixtures • Hard hats

• Cables • Safety Glasses Copyright © 2019 GEP. All rights reserved. 27

 Indirect Categories: MRO - Engineering Services

Procurement impact: The Future:

Supplier collaboration - Ensuring that boundaries are defined and A global shortage of talent will continue to drive
effectively communicated will prevent price increases, particularly in the UK and the
project creep. US. Despite this, respondents expect relatively
Competition - A large number of enterprises compete in modest price increases.
the fragmented engineering sphere. This
increases rivalry between competitors, although
specialization and brand value considerations
detract from buyers’ ability to leverage.

Globally the prices for engineering services category is expected to increase by an average of 1.8%
Copyright © 2019 GEP. All rights reserved. 28
Indirect Categories: MRO - Engineering Services
cont.

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 Challenges – Indirect Procurement

• Require significantly more and varied suppliers

• Have a medium average spend
• Require larger numbers of smaller purchases, more frequently
• Consist of more “maverick” (first time) spend
• Be driven by more internal stakeholders
• Require diverse experience
• Be difficult to evaluate
• Be considered less strategic
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Key Strategies

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Kraljic Matrix

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 Key Strategies – Indirect Procurement

✓ Choose Preferred Suppliers - Minimize “maverick spend” by negotiating contracts with key suppliers in each of the top
expenditure areas. By pooling the smaller spends into a fund with fewer suppliers, you will gain increased leverage on pricing.

✓ Focus on and influence key executives - Using the data that you do have on indirect spend, prioritize areas of the
largest spends, grow expertise in those areas, and build relationships with the key executives in order to gain greater insight and be more
deeply involved in their purchase processes.

✓ Manage with Automation and Measurement - The volume of transactions and diversity of suppliers make
indirect spend an ideal area to manage through collaboration tools. Look for a solution that provides a variety of ways to connect (web,
EDI, SFTP), integrates with a variety of back office systems, allows closed loop procure-to-pay in order to minimize manual processes, and
provides metrics on spend.

✓ Set KPIs - While measuring and scoring indirect suppliers may be more challenging due to the variety of supplies and types of
vendors, suggest that there are some general KPIs that can work across a variety of vendors: contract compliance, customer satisfaction,
and cost competitiveness and continuous improvement.
Copyright © 2019 GEP. All rights reserved. 33
 Tactics to Control Indirect Spend

The tactics, used individually or collectively, can assist a company in managing and controlling
its indirect spend. Some of the tactics are:
• Zero-Based Budgeting
• Pre-Budget Savings
• Supplier Managed E-Catalogs
• Outsourcing Indirect Spend

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Trends

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Global Price Change Forecast Heatmap - 2017

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 Indirect Categories: Insourcing/Outsourcing Plans

• Despite much talk about it, there is

little evidence to suggest category managers
plan to bring indirect activities back in-house;

• In fact, over a fourth of companies (26%) state

they will outsource more;

• In those categories where there is an intention

to insource more (e.g. management
consulting), there is also a strong intent to
pursue additional outsourcing, suggesting that
these categories will be subject to particular
focus and decision-making this year.

One in four category managers will look to increase the proportion of outsourced spend
Copyright © 2019 GEP. All rights reserved. 37
 Our humble view

Procurement deals with the sourcing activities,

negotiation, strategic selection of goods and services
as well as Performance management of suppliers and
categories.

Purchasing is the process of how goods and services

are ordered.

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Questions & Answers

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Thank You

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 ABOUT GEP
GEP helps global enterprises operate more efficiently and effectively, gain competitive advantage, boost
profitability, and maximize business and shareholder value.
Fresh thinking, innovative products, unrivalled domain and industry expertise, and smart, passionate
people – this is how GEP creates and delivers unified supply chain solutions of unprecedented scale, power
and effectiveness.
Named a Leader in the Gartner Magic Quadrant and Best Provider at the World Procurement Awards and
EPIC Procurement Excellence Awards, GEP is frequently honored as an innovator and leader in source-to-
pay procurement software by Gartner, Forrester, IDC, Procurement Leaders, Spend Matters, PayStream and
Ardent Partners.
GEP is also ranked leader in managed procurement services (procurement outsourcing) by Everest Group,
NelsonHall, IDC, ISG, HfS and IAOP. In addition, the primary research firm in the management consulting
sector, ALM Intelligence, ranks GEP leader in procurement strategy and supply chain consulting.
With 14 offices and operations centers in Europe, Asia and the Americas, Clark, New Jersey-based GEP helps
enterprises worldwide realize their strategic, operational and financial objectives.
To learn more about our comprehensive range of strategic and managed services, please visit
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[Link].

Access our free knowledge resources at [Link]/knowledge-bank.

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Additional Examples
For Indirect Category

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 Indirect Categories: Renewable Energy

Procurement impact:

Supplier list: The Future: • Demand management - Buyers can reduce energy consumption,
particularly during peak demand periods. Energy management
• Yingly Solar (China): sells solar modules across Europe, Asia and • Improvements in electricity storage systems mean suppliers are becoming less consultants can be brought in to help implement energy-saving
the US; reliant on costly methods of meeting peak demand. It will also reduce the strain initiatives.
on the grid brought about by the intermittent nature of renewable electricity • Data mining - The implementation of an energy management system
• Vestas Wind Systems (Denmark): the largest maker of wind
generation. (EMS) can lead to a cost reduction of 10%-15%. An EMS monitors and
turbines.
• Relatively modest price increases are expected in electricity. Indeed, buyers in controls electricity consumption according to real-time pricing and
western Europe are anticipating prices to decline. temperature, as well as other factors.

Although companies have continued pursuing renewable energy targets, more governments may scrap their targets Copyright © 2019 GEP. All rights reserved. 43
Indirect Categories: Renewable Energy (Electricity)
cont.

Copyright © 2019 GEP. All rights reserved. 44

 Indirect Categories: Training

Online training systems will need to do the

following to adapt to corporate training:

Supplier list: The Future: Procurement impact:

• Cegos (France): considered to be the largest training supplier in • The growing trend on emphasising soft skills • Supplier collaboration - If a large number of employees require
Europe; within workforces is expected to continue, training and the required material is unlikely to become
• Hemsley Fraser (UK): ranked, for the fourth consecutive year, as one with businesses likely to increase their obsolete, a longer-term partnership with a supplier could
of the world’s top 20 providers of leadership training by investment in soft-skill training for enable both parties to reduce costs and save time.
[Link]. competitive advantage.

Training will become increasingly sought-after as employers struggle to find staff with adequate skills,
knowledge and experience. Copyright © 2019 GEP. All rights reserved. 45
Indirect Categories: Training cont.

Copyright © 2019 GEP. All rights reserved. 46

 Indirect Categories: PR

SWITCHING COSTS:
Although there is no benchmark amount for an agency to
charge, considering the inherent goodwill and learnings
amassed through an extended PR relationship, it is
reasonable to assume switching costs will arise (depending
on contract type).

SUPPLIER PRICING STRATEGY

Negotiation - Work on ways to measure the effectiveness of
a PR firm’s service, build expectations into the service level
agreement and assess future performance based on what is
delivered compared with what was promised.

FUTURE OUTLOOK:
PR firms will face greater demand for pricing to be based on
deliverables. Return on investment and measurable results
will be incorporated into more contracts than ever, with
buyers wanting better alignment of expectations with PR
agencies.

Shifts in social behavior will heavily dictate the ways PR is approached Copyright © 2019 GEP. All rights reserved. 47
Indirect Categories: PR cont.

Copyright © 2019 GEP. All rights reserved. 48

 Indirect Categories: Software Development

Where would you outsource your software development/IT in

the future? (multiple choice)

Supplier list: The Future:

• Ciklum (Ukraine): US$38m • The developer skills for which demand has increased most
revenue; all domestic; rapidly involve working with Hadoop, big data, mobile
technologies, Android, robotics, wearable technologies and
• Second Floor BV the Internet of Things (IoT). Procurement impact:
(Netherlands): fixed date, • Automation is creating opportunities to reduce developer
fixed rate pricing for the administration roles and increase the development of low- • Specification optimisation - Developing a semi-bespoke software solution
financial industry. level computer code, enabling more cost-efficient software can reduce costs, with systems built from pre-existing products and open
development. source software.
• Demand management - Working with key stakeholders and analysing
potential usage and requirements will facilitate cost-effective
development.

Near-shore locations and crowdsourcing will threaten the Indian development powerhouses Copyright © 2019 GEP. All rights reserved. 49
Indirect Categories: Software Development cont.

Copyright © 2019 GEP. All rights reserved. 50

 Indirect Categories: Management Consulting

SWITCHING COSTS
Switching costs are generally low

FUTURE OUTLOOK

• Multi-sourcing and the ‘uberisation’ of the

consultancy industry will grow in 2017.
Companies increasingly prefer a new supplier
relationship model when looking to reduce costs
and generate value. Delegating niche tasks to
different suppliers is seen as a valuable
alternative to the traditional one project/one SUPPLIER PRICING STRATEGY
supplier approach. • Seniority
• Experience
• Companies are still experimenting with • Qualification
alternative forms of pricing. The majority are • Network
using either fixed-rate or time and materials • Talent scarcity
models. Consultancies are reluctant to cede • Intellectual property
these arrangements, yet procurement can • Sector
pressure consultants to accept more a • Geography
performance-based pricing mechanism. • Duration of the assignment
The year 2017 will see a global management consulting price decrease of 1.2% Copyright © 2019 GEP. All rights reserved. 51
Indirect Categories: Management Consulting cont.

Copyright © 2019 GEP. All rights reserved. 52

 Indirect Categories: Data Centres

SWITCHING COSTS
• Switching datacenter or cloud
provider can often involve an
overhaul of established operation
processes. For this reason, the cost
of change management and the
effect on business operations need
to be considered.

SUPPLIER PRICING STRATEGY:

• Suppliers who offer bundled pricing contracts may be trying to actively reduce the transparency of their
costs or the breakdown of the buying organization's charges.
• Data center service providers are often criticized for acting as ‘wildcat power utilities’, meaning that they
resell power to customers at a profit.
• Incentives and gain-sharing elements are also often included by data center and cloud service providers.
These tend to be based on achieving above-SLA performance.
• Joint Purchasing - Sharing data centre space and services is a viable way for buying organisations to pool
both collective resources and demand.

FUTURE OUTLOOK
• The total cost of ownership of data centres is decreasing significantly. This is due to improved methods of
data centre infrastructure management. This leads buyers to believe significant savings are potentially
achievable – in this case, in excess of 15% year on year.
• Mergers and acquisitions between suppliers will reduce the level of competition in the market, which may
arrest this trend in the medium term.

Spend on cloud computing infrastructure and platforms will grow at a CAGR of 30% until to 2018 Copyright © 2019 GEP. All rights reserved. 53
Indirect Categories: Data Centres cont.

Copyright © 2019 GEP. All rights reserved. 54

 Indirect Categories: Air Travel

SWITCHING COST
• Cost of switching between suppliers is generally
low
• Unless a contract detailing certain volumes of
travelers per year has been agreed, journeys are
generally bought on a fare-by-fare basis

SUPPLIER PRICING STRATEGY

• Complex pricing models and algorithms are used to determine the prices that are constantly evolving, taking into account factors such
as:
- time of day - day of the week
- season - public holidays
- seat availability - demand
- departure/arrival location.
• Specification optimisation - Mandate only certain classes for short-haul flights (economy to the destination, premium economy on the
way back) and long-haul flights (premium economy premium to the destination, business class on the way back).

FUTURE OUTLOOK
• Oil prices and ancillary fees will have an impact on airline prices. This may signify a return to relatively expensive air fees, as prices are
expected to increase. Low-cost airlines and economy premium flights will provide alternatives to existing business travel arrangements.
Copyright © 2019 GEP. All rights reserved. 55
Indirect Categories: Air Travel cont.

Copyright © 2019 GEP. All rights reserved. 56

 Indirect Categories: Contact Centres

SWITCHING COSTS
• Switching costs are generally high and the scale of
the costs depends on the client’s own capacities.

FUTURE OUTLOOK
• The current trend among global
leaders such as Tata, Convergys and
Teleperformance is to develop and provide a
multichannel service bundling several communication
platforms (telephony, email, web chat and others)
• The industry remains very fragmented and, despite
the annual growth of 5.8%, no one company has yet
taken a substantial share of the market (source: Sykes,
2013). The intense competition presents an SUPPLIER PRICING STRATEGY:
opportunity to drive prices down. • Building strategic and long-term relationships
•The continuous introduction of cloud-based • Bundling of services together with strategy development allows suppliers to ask for consultancy costs to be
technology in contact centers will drive down prices included in the final price
and cut both supplier and client costs • cost-per-hour should include agreed terms on billed time units and call handling time limits to avoid low
• Overall, the forecast shows a steady rise of prices productivity.
across several regions, with China having the largest • In time-based models, suppliers can include compensation for an increase in volume
increase. • Seasonal factors can be included into a pricing strategy, for example, an air travel company would pay more
in the summer months due to volume increases

Difference in salary rates remains the main profit generator for BPOs Copyright © 2019 GEP. All rights reserved. 57
 Sourcing Trends: Future Operating Models

Two potential future for procurement operating models

1. ‘SUPER-CENTRALISATION’ 2. DECENTRALISATION
• The expanding use of outsourcing will move greater proportions of • There will be greater use of ‘center-led’ or ‘co-sourcing’ models
spend outside the company; whereby buyers work with business units to agree deals;
• This will effectively ‘centralise’ spend in increasingly more influential • This leads to geographic dispersal of teams back into the regions
solution providers who take the combined demand of multiple firms and business units;
to market; • ... and the return of sourcing responsibility to BUs, with dotted
• Such models may be used more for indirect categories, those that line reports to a smaller central buying team.
are ‘business critical’ or ‘core’ directs will remain in-house.
Copyright © 2019 GEP. All rights reserved. 58
 Sourcing Trends: More Supplier Collaboration

40% total global spend covered by

collaborative relationships. Both these Social Supplier Management:
metrics will “A multi-channel programme embracing social media
24% total supplier base covered by increase platforms & networks to connect, engage, collaborate and
innovate with your current and future suppliers.”
collaborative relationships.
Source: Procurement Leaders Supplier
Collaboration Survey

Collaboration will force more (and less) sourcing activities:

LESS MORE
• The number of suppliers will be reduced as businesses push forward with • More suppliers (in a reduced supply base) will be subject to more
supply rationalisation formalized SRM approaches and governance;

• Collaboration will be increasingly reduced as a ‘tool’ for individual suppliers, • Standardized procedures which uniformly apply to collaborative
where price negotiation fails; suppliers as a business programme;

• We will see the management of collaborative relationships increasingly • Use of technology (either internally developed, or 3rd party) will
through personal relationships between buyers and salesmen and less through support collaborative relationships.
formal channels.

Copyright © 2019 GEP. All rights reserved. 59