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11/07/2017

Procurement as a service acts like a central purchasing department

Savings and process efficiency through cross-company bundling -

Managed services are flexibly provided services by an external service provider for a company. The customer benefits from better services and less costs, when the service provider does his job well. In the IT industry, this system has long been established. Storage, server and security infrastructures are offered "as a service". Companies no longer purchase printers, but rather managed print services. Previously, client hardware and on-premise software packages were procured, today its managed workplaces.

The system of managed services works, because service providers can be better controlled by means of service level agreements, and the procured services can be scaled down or up at any time. In addition, companies benefit from expertise they don't have to provide themselves, and they also have access to components of service which they could not cover with their own demand volume.

Potential for indirect needs
What has become established in the IT world can be successfully transferred to services which are not part of one's own core business. A great example for this is the purchasing of indirect needs, the so-called "indirects"-ideally fully processed via an electronic catalogue system with high efficiency and compliant process reliability. The procurement of indirects just happens - it is always a developed process, which is handled differently in each company unit. Due to a lack of capacity and strategic importance, the procurement of these needs is often "just also done somehow". From a human and individual perspective this is certainly understandable, however, taking into account that indirect requirements are present in almost all company areas, tie up expensive capacities and are associated with high processing costs, this is an area where companies are losing money. A lot of money, if one consolidates the company-wide potential. Often up to 20% of the total costs are spent this way, as experience shows.

Synergy effects in mergers and acquisitions
Procurement as a service approach (PaaS) makes sense when it is not viable to reserve resources for tasks that are not part of the core business. The service provider takes over the supplier search, supplier qualification, market observation, framework contract design and price negotiations. The operative ordering remains within the company and is continuously automated at reduced process costs. The service provider, through cross-company bundling and corresponding market power, secures customer benefits, ensures that demand is met at best prices and at best possible service levels. PaaS is particularly interesting for company acquisitions and mergers in order to increase synergy effects, as indirect requirements are oft identical and less sensitive than requirements that flow directly into the product. The cross-company bundling and implementation of corresponding advantages can quickly be established with manageable effort and the managed service approach acts like a powerful central purchasing department. The positive side effects include quick wins with lasting effect.

Much more than office supplies
One might quickly think of office supplies, a goods group in which most consumers recognise the interchangeability, however, there are many other needs which offer lucrative potential for savings if professionally set up, and relieve in-house staff. These needs include services such as temporary employment management, fleet management, packaging material requirements, as well as additional services as per individual agreements. In addition to high quality and an attractive prices in the respective goods groups, PaaS should also focus on an efficient procurement process. A process is efficient, when it is largely automated. The ordering process for small needs can quickly cost EUR 100 and more. This is not a new situation, but still value-destroying. A digitalised purchase-to-pay process needs to be ensured. This is where managed services providers offer an additional strength to companies who don't have a catalogue solution in place.

The managed service provider offers both a platform and relevant suppliers with catalogue link, without huge investment costs, in a short period of time. A standardised implementation saves costs, effort and ensures success. Using cloud solutions, other company units can be connected quickly without the need for system compatibilities or new expensive hardware. Standard interfaces in one's own ERP system offer the corresponding flexibility. Companies that already have a catalogue solution in place, can also be quickly linked via standardised interfaces.

Conclusion
Managed service not only works in the world of IT, but also offers a lucrative potential for optimisation, particularly in indirect purchasing, while at the same time relieving in-house staff. A time and cost-intensive individual connection is not required, which allows for quick results. Not last, PaaS offers a cross-company bundling potential with price, performance and process advantages.

Johannes Kobbeloer
is the strategic buyer at Kerkhoff Negotiate & Contract (KNC). For over seven years he has held various positions in strategic buying, including the procurement of service provisions and industrial goods on an international level.

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