Sourcing Via Managed Services In Procurement Is A Game Changer For Private Equity Firms
Managed services providers (MSPs) bring with them a suite of finely-tuned skillsets, knowledge, and tools to the companies they serve. In an arena such as procurement, this can mean massive savings and opportunities to scale that are not readily realized using non-specialist teams and archaic, clumsy processes that allow for valuable data to slip through the cracks.
Many PE firms are now taking a closer look at existing supply contracts—on valuation, it is clear the direct link that exists between exceptional procurement capabilities and competitive advantage.
Aided by seasoned experts, the procurement process in private equity firms can move away from limiting goals like capturing low-hanging opportunities in favor of more strategic and impactful approaches to value creation so that rapid sizing and added risk mitigation and transparency, the impacts of which will clearly converge on the bottom line.
These are some of the major benefits to managed services in procurement for private equity firms:
Sophisticated Procurement Functions Provide An Edge Over Clunky, Outdated Approaches
Procurement has matured from cost-reduction into value creation.
Procurement has been on oft-overlooked space that’s brimming with value potential. In order to get ahead, companies must leave behind old ideas about ruthlessly slashing costs and simple cost-saving actions like asking suppliers for deals. Rather, today’s procurement—when handled well, ideally via experts from an MSP—is more transformative and comprehensive.
Procurement today involves advanced spend analytics, process automations, predictive technology such as machine learning for demand planning, and a host of other intensive processes that were once reserved for Fortune 500 companies. Now, PE firms can use advanced technology and expertise to look beyond easy wins into all categories of spend to extract value that is far and beyond what could otherwise be achieved.
Sustainable, Scalable Approach
Utilizing more sophisticated procurement strategies results in a more sustainable, scalable approach. With supply shortages hitting many industries, sustainability is a concern for all companies both in terms of classic factors like environmental sustainability, but also sustainability among suppliers. Will companies be able to get the goods they need when they need them? Is there too much reliance on one or two suppliers?
Similarly, if a company achieves unprecedented growth, will current suppliers be able to scale accordingly or will they prove to be a bottleneck?
Managed procurement services help PE firms navigate these types of questions—plus, they are able to see portfolios as a whole unit to achieve even deeper (and verifiable) scalability and sustainability than looking at each portfolio company’s supply strategy from within a vacuum.
To step back a moment to the question of whether or not a company relies too much on a small pool of suppliers for some critical product, it’s much easier to spot these sorts of risks while doing the deeper work provided by MSPs in procurement than it would be using a more scattered approach which can leave considerable risks entirely unknown.
Private equity firms are latching on to the value that mitigating supply risks provides over simply cutting costs. MSPs are also more likely to see ways to mitigate risk from amongst portfolio companies before having to turn externally.
Digitization, Transparency, and Value Optimization
Digitization is a major driver in the managed procurement renaissance. Technologies once reserved for only topmost companies are now readily available at SMB sizes. Digital systems that are nimble, agile, and simple to implement while retaining robust, enterprise-grade features—systems that come par for the course with a good MSP in procurement—are a staple of effective procurement strategies within private equity firms.
Using digital tools, managed services providers are able to aggregate data from all sources both within individual portfolio companies and across the entire portfolio and then clean and categorize this data to create a single source of truth that is free from the confines of data silos.
Then, using advanced spend analytics, machine learning, demand planning, and similar techniques, MSPs can quickly capture value for private equity firms. Electronic sourcing in particular is one arena of procurement that offers considerable benefits in terms of saving time and money.
Having the combination of transparent data and digital tools leads to value optimization that goes far deeper than what procurement pros could have expected to achieve in times past.
All of the benefits listed above become magnified multi-fold when considered from a cross-portfolio collaboration perspective. MSPs in procurement are more readily able to take on the task of cross-portfolio procurement strategies which can be among the most complex sourcing work a firm ever encounters.
MSPs can consolidate spend, look for strategic cross-portfolio opportunities to either supply each other or collaborate on sourcing and achieve economies of scale which can be achieved only through transparent data and accurate spend analytics. This collaborative approach offers unique challenges but can work to mitigate risk as well as spur exponential growth among symbiotic portfolio companies.
Rather than get bogged down in the details of any one new portfolio company, MSPs in procurement are able to help capture value in the long game by surfacing longer-term overall spend trends and executing long-term procurement strategies that can span multiple years and multiple portfolio companies.
Managed services in procurement today is much more than outsourcing. It isn’t a replacement so much as an expansion of your team, working closely alongside the firm to understand, prioritize, and execute the most suitable strategies capture value, capture opportunity, and support rapid sizing with reduced risks, increased transparency, and far, far fewer headaches.
See what Premikati’s managed services in procurement can do for your private equity firm. We will help you quickly see ROI through our white-glove expert team of procurement pros, advanced and agile toolsets, as well as a state-of-the-art (but simple to use!) procure-to-pay marketplace with bespoke options to onboard current favorite suppliers that are already adding value to your portfolio.
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