Q&A: Vinny Patel, Accenture
Vinny Patel is a managing director within Accenture’s procurement BPO business, accountable for service delivery across Accenture’s procurement BPO client relationships in the EALA region. Ahead of our editor’s breakfast roundtable with Accenture looking at trends within procurement and the value of the outsourcing model in this arena. we got together with Vinny to get his take on some of the big issues currently capturing his imagination…
Outsource: Vinny, what are the key trends currently at play within the procurement outsourcing space?
Vinny Patel: Well, I’ve been doing this for a long time and my career has been as a procurement professional. I came out of university and went straight into procurement on the business side of things for many years with the likes of SmithKline Beecham and London Underground, before moving into the consulting and outsourcing world. What I’ve noticed over many years is that the constructs of organisations’ P&Ls have changed dramatically. If you go back 15 or 20 years, most organisations had a good handle on their cost bases. They knew how many people they employed and the payroll; they knew their fixed overheads; and the CFO had a good understanding of the cost base for the foreseeable future.
If you fast-forward to where we are today, there’s been a real evolution in the way the supplier market has evolved. Organisations today still have a good handle on their direct spend, which includes expenses for the materials that go into the products they make. If you’re in the fast moving consumer goods (FMCG) market, for example, direct spend might include glass or sugar. But now, organisations are buying a lot of things from third-party marketplaces – such as marketing services, IT, travel, stationery and logistics. The CFO or CPO now has a whole slew of expenses – known as indirect spend — to manage from third parties. Organisations typically spend between 15% and 30% of their revenues on these indirect goods and services. The conundrum facing the CFO is how to manage that in the most effective way. That’s where procurement has come to the forefront. Twenty years ago procurement existed as a side- or back-office function, whereas today it’s much more prominent because the board recognises that unless you manage that spend in a professional way you’re not really managing your cost base at all. For this reason, procurement as a profession is becoming much more prominent across every industry sector.
O: A couple of questions come to mind, then. With that rise in indirect third-party spend, to what extent is the procurement function being relied upon to drive best practice when it comes to outsourcing, and achieving the agreements that one wants? And what’s been the impact of that change upon the procurement function itself and why is the outsourcing model proving particularly successful?
VP: It’s a challenge for the procurement function to master indirect spend for three primary reasons. The first is the reach of the procurement function into the business. Unlike other functions, procurement is often distributed or decentralised across the business, with the CMO responsible for the marketing spend, the CIO responsible for the IT spend, and so on. Unlike other functions which can be controlled from a central perspective, procurement is out in the business. In order to reach the budget holders who control that spend, organisations would need a sizeable function to tackle all that spend across multiple regions, multiple business lines and multiple areas of spend in the most effective way.
The second barrier is lack of information. Whereas the CFO historically had a good handle on the cost base, today it’s very hard to collect all that information from third-party suppliers. Organisations do business with thousands upon thousands of suppliers and the supplier has more information about what they do for a client than the client will ever have. This creates an information imbalance, and getting one step ahead of the supplier base to create value is a real challenge.
The final barrier is a lack of follow-through. We see one third of savings never get realised due to dropped or disconnected processes between the point of negotiation and spending. Communicating to the business so people are buying from preferred vendors and enforcing those policies is a significant challenge.
Procurement outsourcing helps organisations get round those barriers. For example Accenture has created a solution around four main pillars. We look at sourcing and category management, bringing experts around each category of spend and creating pools of resources across clients. We provide contract services to help clients contract with suppliers in the most effective and efficient way, reducing contract cycle-times while managing risk. Accenture provides operational procurement, which is about helping clients put in place the right catalogues on their electronic systems and educating the user base on preferred vendors. And finally, we provide the Accounts Payable function so when there’s a lack of follow-through we can actually link everything from source all the way through to pay.
When looking at each of these areas in isolation, many clients think they’ve solved these issues, but when you look at what they’ve achieved, there’s still lots of value leaking out from the end-to-end cycle. That’s where we can help them be more effective in capturing value and taking their business to the next level.
O: None of that is a particularly transactional play, but requires a lot of expertise. Does the higher-value nature of the work require a more sophisticated partnership model?
VP: Absolutely. You’ve hit the nail on the head. Procurement outsourcing is a natural extension of the business so we work with our clients to be part of their CFO or CPO function. We deliver outcomes by providing a comprehensive solution that includes people, process and technology, all leveraging an infrastructure that includes access to real-time supply market intelligence. It’s much more than a transactional relationship. Typically we have professionals working on the client’s premises every day, working alongside the CFO, the CMO, the HR director. We view our engagements as partnerships, working together to help influence spend in a professional way.
O: One of the things Steve Turpie highlighted in our recent interview was that Accenture brings a lot to the table in terms of your relationships with other providers, and the broader network generally – and he said that this was something that smaller organisations probably wouldn’t be able to provide. How important a part of your offering is that ability to leverage those relationships?
VP: It’s very important. There are a lot of nuances in procurement related to the technology the client has already invested in. We have long-standing relationships with most of the technology providers and process developers in the marketplace so we’re able to work with the systems the client already has in place. For example, we leverage cloud–based solutions from Ariba, an SAP company, and the Ariba Network, their global trading partner platform, to deliver next-generation Procure-to-Pay services so; we know their technology very very well. If a client has invested heavily in Ariba or SAP – or any other technology platform – we already know how those technologies operate. We know how to get the best out of them. And the client takes a lot of comfort from that. We’re not trying to reinvent the wheel or usurp their current technology platform. In essence we’re trying to enhance what they already have.
O: And where next? What are going to be the big trends to follow in procurement outsourcing?
VP: The key thing that comes up over and over when I talk to CFOs is the source-to-pay connection. In isolation there’s a capability around sourcing that creates value by helping the user base transact and closing of the loop at the Accounts Payable function. What we’re focused on delivering to our clients is making the source-to-pay link much more prominent with the category expertise, the transactional processing, the contracting component and the Accounts Payable process, all wrapped up with a suite of technologies. Clients are coming to us now much more about the source-to-pay journey rather than for a single slice of the end-to-end process. And that’s the best way to really effect change in the procurement process and drive real business value.