Procurement BPO and the SOW MSP – What’s the Difference?
The rapid pace of innovation in workforce management – and the proliferation of software, services and other solutions designed to meet workforce management needs – has resulted in some understandable confusion about terms and terminology. Different authorities post differing definitions of actions and activities and there is sometimes a disconnect between two workforce management professionals who think they’re talking about the same thing. This piece will tackle the difference between a Procurement BPO and an SOW Managed Service Provider (MSP) which are two activities sometimes mistaken one for the other.
Let’s first clear up any confusion about the procurement BPO (business process outsourcing). As the name implies, the procurement process is outsourced to a provider who assumes the vast majority of procurement activities. This includes operational and task-based activities as well as skill professional management of categories, vendors, strategic development, etc. For procurement organizations with only nominal expertise in human capital procurement, outsourcing this specific slice of procurement may be more time and cost efficient than trying to muddle through with questionable success.
However, BPO models tend to be costly so organizations should weigh carefully whether the BPO saves more than it costs. Moreover, there is little the BPO model delivers in terms of knowledge development or transfer since it operates mostly separate from the customer’s procurement department.
The statement of work managed services governance model provides a framework for managing certain categories of spend in scope, but does not outsource all related tasks. This model has more recently been finding favor among more organizations for a number of reasons – chief among them being that the MSP model is more integrated with the customer’s internal teams and capabilities. The SOW MSP delivers access to category skills and experience that may not exist on the internal team. Also importantly, this model allows a customer to scale the transactional management of its SOW spend in scope (i.e. sourcing, contracting and treasury management) functions without ceding control over more strategic roles such as category management and vendor management which remain staffed internally. This leaves the MSP to handle all the task-oriented work while the customer organization maintains direct control over all strategic direction.
Additionally, the SOW MSP tends to be less costly and more flexible to implement than its BPO counterpart.
As the SOW MSP has increased in adoption, procurement BPO providers have been compelled to alter their models to become more efficient, more focused on category maintenance, and more competitive on pricing. However, they could still benefit from providing a program governance model approach to managing an integrated solution. Conversely, MSP can improve their offerings by acquiring more sourcing/vendor/category management expertise. As both solutions move more toward the middle, we may ultimately see some convergence in the delivery systems. Until then, it pays to understand how these two models differ so that you can select the one presently better suited to your organization’s particular needs.