intern report.docx

Department | 6/17/2014 | © Robert Bosch Engineering and Business Solutions Limited 2014. All rights reserved, also regarding any disposal, exploitation, reproduction, editing, distribution, as well as in the event of applications for industrial property rights.

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A Study on Procurement Outsourcing

And how to expand the Internal

Services to Global Customers

By-VIVEK KUMAR

Summer TraineeIIT Roorkee

E. No. -30962628


INDEX

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1. History of Outsourcing2. Introduction3. BPO in India4. Company Overview providing BPO services5. Procurement Outsourcing6. BPO business models7. Business Opportunities in India8. About BOSCH (RBEI)9. Report Findings (Suggestions and Approach)10. Current Trends11. Future Prospects


1. HISTORY OF OUTSOURCING

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Started in 1700s during Industrial revolution.

Services outsourcing to India started in 1980s.

To focus on their core competencies.

PO started in 1997-98.


2. INTRODUCTION

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1. OUTSOURCING It is defined as shifting company’s day to day operations to an external service provider .

It is contracting out of business process to a third party.

It is the concept of taking internal company function and paying an outside firm to handle them.


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2. OFFSHORING Relocation by a company of a business process from one country to another.

Operational process, such as manufacturing, or supporting processes, such as accounting.

LOW COST COUNTRY SOURCING.

Different from Outsourcing.


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3. BPO Subset of outsourcing.

Contracting of the operations and responsibilities of specific business functions.

Can be categorized as back office and front office outsourcing.


3. BPO IN INDIA

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1. GROWTH

2.8 million people work in outsourcing

sector (2012).

Annual revenues are around $11 billion,

around 1% of GDP.

India- world's favored market for BPO

companies.

A steady rise in GDP from 1.2% to 5.4% - contribution of BPOs.

1997-98: US$ 4.8 billion.

2006-07: US$ 47.8 billion .

Current rate of growth is 28%.


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India is now the world's favored market for BPO companies, among other competitors, such as, Australia, China, Philippines and Ireland.


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2. Phases of BPO

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Bandwagon Phase

(1990-2000)

Big Bang Phase(1980-1990)

PHASES OF BPO

Barrier less Organization

2000 onwards

Based on cost cutting. Transactional outsourcing, aimed directly at cutting and reducing operational costs.

Cost cutting and capability

management. primarily aimed at acquiring resources

that are or insufficient internally.

Organizational transformation

organization in to a more dynamic,

efficient and focused unit.


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3. Types of BPO Customer contact (customer relations management) Finance/Accounting Equipment Human resources Logistics Procurement/Supply chain management Security Some of the most common areas for outsourcing services

are professional services like accounting, purchasing, legal, information technology support and other specialized services. Other areas being outsourced is document, utility, insurance, secretariat, consulting, healthcare, manufacturing, news and media services.


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Services being provided can be vertical or horizontal in nature.

BPO horizontals are function-specific and could spread across different industry domains. Payroll processing services, data processing services and tax solutions are examples of horizontal BPO.

Vertical BPO concentrates on functional services in specific industry domains such as manufacturing, retail, financial services and healthcare.


4. COMPANY OVERVIEW

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1. INFOSYSOverall services can be divided in to three category:-

Business services

Technology services

Outsourcing services

Outsourcing services covers the areas such as: - Application outsourcing Infrastructure outsourcing Business process outsourcing Sourcing and procurement Customer service Finance and accounting Human resources Working models like PPM(Process Progression Model) and

VRM( Value Relationship Strategy), and tools like SCCT(supply Chain Control Tower ) has been in use.


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Sourcing and Procurement practice It delivers significant business value through strategic

sourcing and spends management to the challenges such as:

High cost of service delivery

Paucity of strategic sourcing skills, domain and category expertise

Lack of measures to deal with economic shocks and market volatility


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They offer end-to-end solutions from pure-play transactional processes to high-end services such as:

Operational sourcing and tactical buying A strong mix of onshore, near shore and offshore sourcing

support teams help in day-to-day operational sourcing and tactical buying services.

Procurement operations and help desk From scanning and processing invoices, to making

proposals, and ensuring a smooth month-end closing of finances, procurement operations cover it all.


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Category management and strategic sourcing


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2. COGNIZANT Different types of services provided by this company are :-

analytics, application services, business process services, consulting, customer relationship management, digital business services, engineering and manufacturing services, IT infrastructure services, quality engineering and supply chain management.

They focus on getting all the services of a company i.e working on vertical services like Banking, financial, communication, healthcare, media and entertainment, life sciences, insurance, retail and travel & hospitality.


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Considering the supply chain services it follows certain steps to provide satisfactory services :-

Supply Chain Transformation services


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Supply Chain Planning Services


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Supply Chain Execution

Warehouse management

Logistic Management

Distr. Order Management

Inventory Synchronization

Supply Collaboration


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3. TCS TCS’ services currently organized in to following service

line:- Application development and maintenance (42.80%); Asset leverage solutions (2.70%); Assurance services (7.70%); Business process outsourcing (12.50%); Consulting (3.00%); Engineering and Industrial services (4.60%); Enterprise solutions (15.20%); IT infrastructure services (11.50%).


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Talking of the horizontal services it covers areas like: - Customer interaction management Finance and accounting Human resources SCM and sourcing & procurement.

Some of the complementary services provided by the company are supplier quality, spent analysis, compliance audits, supplier development, supply chain analytics, optimizing sourcing and procurement etc.


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Considering the SCM and sourcing& procurement the services span the entire supply chain including the following:-

Sourcing and procurement Spend analytics Product development planning Order management Contract lifecycle management Planning Manufacturing scheduling and forecasting Logistics and customer support Vendor relationship management Procurement technical help desk After market services


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4. GENPACT Genpact’s unique Smart Enterprise Processes (SEPSM)

methodology focused on business impact while safeguarding costs and limiting initial investment .

Several Services it provides under the Automotive sector

are as follows:- Finance and accounting Supply chain management Smart decision services IT consulting Auto finance services Human Resource services


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Considering the supply chain management services it focuses on providing the end-to-end procurement and supply chain services and solutions to both direct and indirect material.

End-to-end supply chain offerings include Forecasting & Planning, Sourcing & Procurement, Logistics & Fulfillment and Service Operations.

It employs it‘s unique technology SEP to implement best in class practices across procurement and sourcing organization, and is supported by Six Sigma based Reengineering, domain expertise, superior solution design and execution.


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Sourcing and Procurement services consists of :

Sourcing and category management (Spend Analytics, Negotiation and Contracting, Sourcing evaluation)

Direct materials (make or buy decision)

P2P transaction processing (Requisition to PO issue, Expediting, Ad Hoc Spot Buys, PO to Receipt to Invoice Reconciliation, and accounts payable).


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5. ACCENTUREThe different services provided by the company can be divided in to two category namely:-

Cross Industry BPO Services

Marketing Finance and accounting Supply chain Sourcing and Procurement

Industry Specific Services

Accelerated R&D Credit services Health administration Health management Insurance Network Utilities


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It has got variety of offerings designed under Sourcing and Procurement service as follows :

Closed Loop Spend Management Dynamic Supply Management Diagnostics and Visibility: Sourcing and Category Management Supplier Relationship Management Risk Management Buying Operations/Procure-to-Pay (P2P) Workforce Transformation

The Supply Chain Services offering includes: Forecasting Sales and Operations Planning Promotions Planning Transportation Planning Replenishment and Inventory Management Order Execution and Delivery Assurance Spare Parts Planning and Management Warranty Management Predictive Asset Maintenance Direct Supply Management Supply Chain Control Tower

Procurement Value Measurement (PVM) and Joint Sourcing Ventures (JSV) are helping them a lot in providing satisfactory services to the customers.

6. WNS WNS is a global business process management company

offering services such as Customer care outsourcing, legal services, Procurement, Shipping and Logistics etc.

It delivers shared back office processes such as Finance and

accounting, customer care, legal, technology solutions and procurement to industry specific back office and front office processes. The services provided by them can be divided in to two groups as:-

Cross Industry solutions

Industry specific solutions


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They are exploring new procurement models, which include widening the supplier base.

They are partnering with procurement outsourcing providers in areas like procurement analytics and procure-to-pay cycles.

WNS‘ procurement outsourcing solutions include:-• Supplier research and analysis• Sourcing support and administration• Contract management• Market Intelligence• Competitive Intelligence• Procurement analytics(Spend Data Analysis and

Management, Cleansing, Maintaining and Format Conversion, Statistical Analysis and Report Generation)


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7. HCL HCL comprises two publicly listed companies, HCL

Technologies and HCL Infosystems.

Provides offerings in product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals.

Provides services to different Industrial sector such as Aerospace and Defense, Manufacturing, professional services, Servers and Storages, Financial services, Automotive, Media and Entertainment, Retail and Consumer, Travel, Transport and Logistics.


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Supply Chain solutions combine deep strategic and operational capabilities with experience in implementation-related consulting. Their services include:-

Advanced Planning & Scheduling, CPFR (Collaborative, Planning, Forecasting and

Replenishment), Demand Planning/ Forecasting, Demand Management, Inventory & Prod Planning, Replenishment, Supply&Distribution Planning, Network Planning, Segmentation & Strategy.


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CPFR A business model that takes a holistic approach to supply

chain management and combines the intelligence of multiple trading partners in planning and fulfilling customer demand by using common metrics, language and firm agreements to improve efficiency for all participants.

Links Sales and Marketing best practices.

Category management, supply chain planning and execution processes to increase availability while reducing inventory, merchandizing, transportation and logistics costs.


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The diagram below shows the relationships of the three main players along with the four phases.


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In the field of Sourcing and Procurement the solutions it provides are:-

Benchmarking against the marketplace, Supplier Relationship Management, Spend Management Product Cost Engineering Supplier Cost Engineering RFX Management, Contracting and Negotiation Solutions, Procurement process improvement including e-Sourcing and

Procure-to-Pay solutions.


PO Market Standing

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5. PO- Fastest Growing BPO

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Procurement Outsourcing was developed at the same time other BPO’s were introduced but it now only the procurement sector has shown a massive growth over the years.

Since 2007, the PO market has maintained an 18% compound annual growth rate in terms of Total Contract Value (TCV).


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Healthier growth is expected for the procurement outsourcing industry in the following five years.

PO has much higher potential savings than any other BPO functions.

Studying last few years of trend and growth in Procurement, we will find that companies are looking at option of outsourcing their different Procurement functions.

Order management, Order fulfillment, Compliance management, Logistics and Spend analyst is also something which companies are looking to outsource.


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Now the CAGR has reached at an average of 22% in the area of Procurement Outsourcing.


6. BPO Business Models

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1. Global Delivery Network Combines onsite, offsite,

onshore and offshore resources.

To get optimal cost and labor efficiencies

A firm works round the clock.

Also called Blended Outsourcing.


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2. Hybrid Model Dual-shore model.

20% work is done onsite alongside the clients team.

80% work is done offshore.


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3. Multisourcing Model Hub & Spoke Model.

Make use of multiple offshore supplier.

Users of this model typically have their own offshore operations, plus three or more partner outsourcing vendors with whom they collaborate.


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4. Build-Operate-Transfer Model Based on idea of not outsourcing to third party vendor and

starting their own foreign subsidiaries.

Contracts with an offshore partner to build a shared services and operate it for a fixed interim period.

Logic : the offshore partner can initiate operations and reach operating stability much faster than it can with an in-house effort.


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5. Global Shared Services Model A centralized organisational unit that delivers services to

multiple business Units or functions.

Consolidate organizations' internal service operations into mega-service centers.

Also called Offshore Insourcing or Captive Centers.

Run as independent businesses with less of the control issues that third-party BPOs face.

Sometimes these centers are run with their own budget .


7.Business Opportunities in India

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While looking at the prospect of doing business in India it would be prudent to see what options are available to a Non Indian company to invest in India. There are primarily two ways to approach:

Having own set up

Branch office 100% subsidiary Joint Venture Companies Acquiring existing Indian Setups

Outsourcing work to a local company


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Variation of different business models based on the geographic locations and the type of ownership.


8. BOSCH

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1. INTRODUCTION Multinational engineering and electronics company

headquartered in Germany. more than 350 subsidiaries across over 60 countries Core products:- Automotive components (brakes, controls, electrical

drives, electronics, fuel systems, generators, starter motors and steering systems),

Industrial products (drives and controls, packaging technology and consumer goods),

Building products (including household appliances, power tools, security systems and thermotechnology).


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2. RBEI 100% owned subsidiary of Robert Bosch GmbH.

The services provided by RBEI to the Robert Bosch GmbH are as follows: -

Finance and Accounting Supply Chain E learning and animation Translation services Documentation and Technical writing Information Security


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Procurement Outsourcing Services for Procurement are divided in to two groups based

on the types of materials they are dealing with: Direct Procurement

Forecasting and PlanningSourcing and ProcurementLogistics and FulfillmentSupplier GovernanceAftermarket

Indirect procurementOrder ManagementSpend CubeCategory ManagementDiscount Calling


9. Report Findings

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Suggestions

1. Multifunction Provider (but good at procurement services).

2. Strengthening the Global Delivery Model and building out Delivery Capabilities.

3. A company new to outsource its activities generally fragments its activities in three areas to be focused

* Market and Business *Product Architecture and Design*Supply chain

In this case we may have two optionsa.) Tie up with leading service provider.b.) Tie up with other evolving service provider.


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4. A company new to outsource its activities generally goes for Multisourcing provider (in 95% cases).

5. Make the client realize their savings in business areas (3 major business areas)

Sourcing and Category management Procurement (Source to pay) i.e working on

transactional savings Accounts Payable


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6. We may consider the research studies which highlights five of the best practices, which enable world class procurement performance. They are:

Strategic Alignment:- Coordinate with other functional areas of the business.

Cross Functional Partnering:- High quality partnering initiatives are the key to the development of the supplier base and the achievement of common goals, such as enterprise level planning and the budgeting process.

Complexity Reduction:- Reducing the complexity of supply bases, internal processes and technology environments.

Technology Enablement:- Improved IT enablement.

Business Process Sourcing:- Use of best Procurement processes.


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7. Expanding and deepening the scope of spend influence as well as supporting supplier- led product innovation and Supply Market Analysis .

8. More focus on providing the services in the Indirect Spend category. Companies engage themselves with the direct spend as they don’t want to outsource any strategic elements with all strategy formed internally.

9. Changing the PO Model can generate additional benefits and possibilities of savings delivered in new environment. 83% 0f the mature companies have recently changed the POM and are tending towards a Center-led model.


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Savings are almost same it only differs with the maturity of the organization.

5%

6%

Chart TitleSa

ving

s


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How to approach? If a firm is going for New Product Design (NPD).

If a firm is establishing its new plant at different location.

At the time of renewal of budget (check for company following Zero Based Budgeting).

While approaching a client consider the “HALO Effect”

Look for small clients at the starting.

Take help of BEBS.


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From the firm’s point of view, while they are looking for service provider they generally check following points to approach a service provider

Past experience with the firm Personal contacts and recommendations Reputation in specific areas and functions Length of time the provider has been in the

community Advertising sample of work and references Price efficiency Understanding the needs and problems of the

clients.


10. Current Trends

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Current market analysis shows a very little share of procurement outsourcing.

Today 70% of the BPO services falls under the category of Horizontal services.


11. Future Trends

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SCM BPO is expected to grow at CAGR of 12.5% over the next five years.

Domestic BPM market is predicted to reach $2.47 billion by 2014. Rise in the vertical market (retail, shopping, shipping, healthcare

etc.) as compared to the horizontal services. More focus of the companies is for getting the vendors who can

provide them End-to-End processes .


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Future growth of Procurement Outsourcing is expected to follow the following trends:-

* Client relationship onshore will drive success. * Procurement consulting firms will be challenged.

Expectations are for the consulting market to evolve as buyers will seek

benchmarking effectiveness rather than process or transformative consulting. * Greater adoption of spread-technology in procurement

outsourcing. Technologies, such as Infosys’s client-developed platform and

Capgemini’s IBX platforms, look to transform procurement by providing a

complete end- to-end solution. * Nearshore goes mainstream. Companies with strong offshore

presence are now actively placing some of their sourcing assets in

Nearshore locations. * Domestic Sourcing becomes a Reality. Companies are

bringing back critical services and processes to their captive centers or onshore

service providers.


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Shift towards BPM. The outsourcing industry is evolving from task oriented BPO services to a platform-centric and outcome-linked BPM (Business Process Management) model.

Increased Services Transformation to MSM (Managed Service model). Evolution of relationships with service providers beyond the traditional client-vendor relationship to that of a business partnership as firms matures their outsourcing activities.

THANK YOU

intern report.docx

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