White paper

OFFSHORE PROCUREMENT MODELS

The constantly evolving optimized state

- Paul Millett, Director, Infosys Portland

- Adam Crowe, Healthcare Practice Lead, Infosys Portland

Abstract
In 2014 Infosys Portland, previously the Portland Group, conducted a series of
interviews with 10 global companies for a client in the services industry who was
exploring the opportunities and challenges of setting up a procurement hub
in Asia. The extensive interviews gave us rich insights on offshore procurement
models being utilised by global companies and we capture them in this paper.
Firstly, this paper lays out the different levels of offshore procurement models used
by global companies. All these different state levels (e.g., tertiary state) can provide
an optimal procurement solution for a company in its current level of global
reach. The paper then provides the key takeaways from the interviews. It assists to
provide a comprehensive set of tools that can be used to determine the
best-fit procurement model when expanding the global reach of a company.
For companies who are re-examining their current model, the balance of the paper
assists companies when reviewing their 3-5 year strategic global
procurement plan.

Portland
 Part 1
Definitions & Key Findings
The four states in the offshore
procurement model evolution
The four levels of offshore procurement
initiatives include: base, primary, secondary,
and tertiary.

Base State: This is defined as enterprises

with global suppliers and customers that

e
at
St
ry
tia
r
have yet to establish offshore procurement

Te
e
at
St
operations.

y
ar
nd
co
Se
Primary State: A natural progression

e
at
y St
ar
im
Pr
from the base state is establishing an

te
ta
eS
International Procurement Hub (IPH) which Local or National

s
Ba
marks the transition to a primary state. This IRSO, Supply Chain Management,
transition is often driven by a combination and BPO

of factors including: IPH Outsourcoed or Insourced

GEO, Global system interfaces
• Growth in offshore suppliers

• Strong growth in offshore customers

• Establishment of offshore business units

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Secondary State: An IPH delivers lower than financial engineering factors. chain activities and can help tap into
costs with better leverage of global Companies that have pursued these Global Exchange Organisations (GEOs)
purchasing power, lower labour costs in fundamentals have moved to the to create the highest level of efficiencies
some countries, and attractive government secondary state where they have achieved not only within the company but within
incentives (such as tax). However, these efficiency improvements and new supplier the industry which it participates in. In
benefits can be quickly eroded if the advantage. These benefits translate to addition, system integration covers sales,
design is overly driven by financial supply chain improvements by connecting expenditure, and costs. It should be noted
engineering factors. A company may into global purchasing organisations that not all industries have readily available
experience higher operational costs in the (GPOs), or outsourcing transactional GEOs to improve efficiencies.
IPH and increased process inefficiencies procurement activities via business process
from having to redirect procurement Infosys Portland has assisted several clients
offices (BPOs), or tapping suppliers directly
activities via the IPH to support its viability with these complex offshore structural
through international regional sourcing
without much commercial benefit. But changes using the global office network
offices (IRSOs).
when strong alignment is maintained with of its parent, Infosys, and its own offshore
suppliers and customers and a thorough Tertiary State: This state is where subsidiaries and partners. With deep dive
due diligence is carried out to determine technology and systems deliver the analysis and careful planning, we have
the categories and functions that should highest combination of efficiencies and identified solutions to address these
fall in the IPH’s purview, then the IPH is effectiveness. Technology and systems challenges in a way that both operational
supported by operational factors rather overlap all procurement and supply and financial benefits can be delivered.

Offshore

• Inter-connection with
tate global exchanges
ny s
at a
• Comprehensive
xist system integration
lc an e Offshore across all levels
ed leve
imis
Opt • Sourcing hubs
• Sourcing hubs
expanded within regions
expanded within regions or countries
or countries • BPO includes category
• BPO includes category management and
Level of Offshore Procurement Units

management and new new functions

functions
Offshore
• Procurement Hub • Procurement Hub
• Procurement Hub expands further into expands further into
expands further into supply chain and new supply chain and new
Onshore supply chain and new functions functions
functions • Hub insourced • Hub insourced
• Hub insourced • Hub provides trading • Hub provides trading
• Hub provides trading
• National, state, and local
procurement & supply • Components of local
chain management • Components of local and national
• Onshore & offshore • Components of local and national management management
suppliers and national management structure remain structure remain
• Onshore & offshore structure remain
supply chain activities
but no management
located offshore State
Tertiary
te
Secondary Sta
State
Primary
te
Base Sta

Level of Global Reach

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 Key takeaways from interviews
We interviewed companies from a wide range of industries who have implemented or are implementing primary, secondary, and tertiary
states of international procurement solutions. Key takeaways include:

Commercial factors
• Ensure the procurement hub’s
viability is supported by commercial
factors alone before considering tax
advantages
This will help avoid implementing
sub-optimal management structures
simply to obtain tax benefits where
the management costs could quickly
erode all tax benefits and threaten
the long-term viability of the offshore
procurement hub.

• Look at your suppliers for talent

It can help address lack of talent in
some locations or intense competition
for talent in others, such as Singapore.

• Examine both the location of your

supplier’s manufacturing bases and
their regional or global sales and
account management
This is essential to determine the most
suitable location for a procurement
hub. These personnel are the key
decision-makers for global deals.
supported by factors such as • New systems. In cases where the IPH
• Category support does not need to be proximity to supplier warehouses includes new trading activities, new
co-located with your global category and global trading hubs; for example, systems need to be implemented.
management diesel out of Singapore.
Some clients have implemented
• Regulatory scrutiny
Technology, systems, and audits This can be an efficient process if the
external BPOs which provide category
support to the IPH which is domiciled
• IPHs should tap into technology right advice is sought upfront and
enablers such as global exchanges if strong planning and implementation
in another country.
available delivers robust policies and procedures.
Financials An example is the Global Healthcare
• Savings. Target savings of more than Exchange in the U.S. and Europe used
• Your IPH may not only serve the
objectives of your own company but
5% have been achieved by most clients by IPHs and GPOs to transact, trade,
they may also serve some of your
who established IPH or BPO through and improve supply chain processes
“friendly peers”
amalgamating spend, streamlining and contract management for
Whether it is in the form of an IPH or
processes, and using favorable regional healthcare products.
a GPO, you may find a new source of
pricing to benchmark globally with
multinational companies.
• System upgrades are required in an revenue that can be driven through
IPH but not necessarily in the base the international office by providing a
• Trading operations can be routed system technology (e.g., SAP, Oracle) service to some of your own suppliers
through an IPH and supply chain Upgrades required are normally in the or partners. This would require
management overlay reporting systems across all amalgamating expenditure across
This provides further net income to platforms to enable improved catalog companies including your own for
be earned by the IPH which could be usage. Infosys Portland delivers this mainly indirect spends.
located in a tax-effective jurisdiction. service with their procure-to-pay
These activities need to be strongly (P2P) system.

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Part 2
Identifying the best-fit offshore procurement model
Background
Historic data of the past seven years mainly in India and the Philippines to During 2011–2013, the banking sector
shows that apart from commercial drivers, reduce transactional costs. Furthermore, improved, in particular in Australia,
global economic events have played an GPOs and GEOs were established mainly which provided further impetus for IPH
important part in establishing an IPH. The in the U.S. and Europe to amalgamate and BPO growth in Asia and Europe for a
global financial crisis reduced or eradicated expenditure within certain industries to number of banks.
growth in many markets. Companies obtain lower prices and reduce supply
In 2014–2015, more CEOs are shifting
responded by driving down costs with their chain costs.
their strategies to global growth
suppliers. International companies sought
Expansion and development initiatives rather than just organic growth. Many
improved buying power by amalgamating
by the Chinese government fueled a companies are advanced in their
regional and global spends.
commodity boom during 2010–2011 global growth objective adding further
With manufacturing moving more and which led many major mining companies pressure to existing procurement
more to Asia and the financial meltdown, to establish IPHs in Asia. For most of these structures. These companies are driving
many IPHs were established in Asia during companies, operational and procurement demand for IPH, IRSO, GPO, and BPO
2008–2009 with either a regional or global benefits were the key factors with tax solutions in all regions.
focus. Additionally, BPOs were established reduction providing further advantages.

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 Characteristics of an optimal offshore procurement structure
The best global procurement structure for a company requires sustainability, flexibility, and elasticity. Often, procurement teams are tasked
with quickly delivering cost efficiencies from local or global acquisition. Sometimes even before one acquisition is absorbed, another
acquisition changes the playing field. Hence, a further capability is required – scalability.

The progression of a global procurement structure is as follows:

Model Types Driving Factors State

Local / regional hub
• Main suppliers only have a regional footprint
• Company operations are heavily weighted to the local market
• Global suppliers managed via local / regional offices to meet local market needs
Base
Regional and global
deals in certain • Main suppliers have a global footprint
categories • Supplier manufacturing bases are concentrated in global regions
• Company operations are growing offshore

Selective external
(outsourced) IPH • Used when first establishing global procurement offshore
• Most external (outsourced) IPHs are based in the US and Europe
• External models in Asia mainly cater to indirect spends
Primary
Commodity-based
internal IPH • IPH established with main aim being to access global deals
• Often deployed when a select number of strategic commodity-based spend categories are
available with trading market in proximity to IPH; e.g., diesel in Singapore

Internal IPH with

‘surgically’ selected • IPH established with the main aim being to achieve better global deals for selected strategic
categories
categories with
regional sourcing • Surgically selected categories and/or sub-categories
(IRSO) • Often supported by local sourcing teams in key manufacturing regions for selected
categories; e.g., China)

Internal IPH,
regional sourcing • All of the above with supply chain management activities added (e.g., control of 3PL / 4PL
Secondary
partners for global categories)
and supply chain

Internal IPH , supply

chain connected • All of the above plus addition of global BPO partner(s) for selected processes, e.g., PR-PO,
tactical buying, analysis & reporting, Master Data Management (MDM)
with a GPO and an
External BPO • Wider category management feasible in BPO but for selected non-core spend categories
(e.g., indirect)
• IPH uses GPOs for selected spends and price tracking

Global insourced
IPH with CPO • Addition of global procurement governance roles (e.g., Chief Procurement Officer (CPO))
governance role, • Often involves ‘hard line’ reporting from procurement teams in other geographies globally
GPO usage for to drive compliance
certain spends, • All major spends are managed from IPH
and external
(outsourced) BPO.
• GPO is used for certain spends where internal amalgamation does not realise sufficient
Tertiary
purchasing power
The IPH could use
the services of a • Main aim is to pass as much expense through BPO to obtain labor and efficiency benefits
GEO if it exists in its • GEO used if available for supply chain, price-tracking, and working capital management
industry • System enhancements providing efficient and effective commercial integration between
procurement and supply chain and sales, both globally and locally

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To determine the right mix of procurement
model, a filter process is needed that can
be moulded over time to fit a company’s
ever-changing corporate structure.

Reviewing the offshore

restructuring initiative
The traditional steps undertaken to review
any offshore restructuring are as follows:

Strategic alignment
• Examine the strategic objectives and
current initiatives of the company and
identify the changes needed in the
current procurement framework to
align and support these objectives

• Review the suppliers, organization

framework with regard to sales and
manufacturing bases

Geographic spend assessment Location assessment • Identify the components of

• Determine the spend (including capital • Assess the alternative locations of procurement and their location and
items) that can be managed offshore, the offshore procurement activities map out the projected timescale of
regionally, or globally, leaving other using the following criteria with your implementation
spend to be managed nationally or preferred weightings:
Risk review
locally
Skills, talent, culture, and language • Identify the risks and determine the risk
Procurement assessment suitability mitigation strategies
Proximity to supplier sales hubs
• Determine the quantum of expenditure
Operating model design and plan
that can be managed globally for each Proximity to key internal
category stakeholders • Identify any other uses for the IPH or
BPO besides traditional procurement
• Complete price benchmarking on Political and regulatory stability activities, e.g., acquisition vehicle
a global basis and review supplier
profitability
Establishment and running costs • Compare TCO against the total benefits
Sustainability and ethical standards delivered under your model and
• Estimate the improved total cost
Government incentives (e.g., labor
determine whether there is sufficient
outcome (TCO) that can be achieved profitability
rebates, taxes)
from this amalgamation
• Map out a timescale for these activities,
Function assessment • A more expansive list provided by the
e.g., set up an IPH in Years 1 and 2 in
• Identify which functions of
Journal of Procurement and Supply is
worthy of consideration. “International
Singapore and follow this by establishing
procurement should be managed a BPO in India in Years 3 and 4
purchasing offices: Literature review
offshore – sourcing (IRSO), category
management (IPH), contract
and research directions” (2012), • Determine your system requirements.
Sartor, et al. Infosys Portland’s P2P system provides
management, transactional processing
a complete overlay across all systems
(BPO), supply chain (GPO), and Internal (in-house) or external
which extract data for diagnostics and
technology improvements (GEO) (outsourced) solution
assist global companies in assessing
• Identify the enablers
• Determine the TCO of internal and
their expenditure across a number of
external solutions in that location
regions

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 This filter process can be depicted in the following diagram

Strategic Alignment
Global Vs National Concentration of global supply market No Remain
growth expectations (for key categories) Local or
Regions of key growth Global Value Potential National
Business unit Procurement & Supply Chain
growth ambitions Operational Efficiencies
Financial

Target Spend Determination

It can be an iteractive
process

Functonal Assessment
Governance Tactical Procurement
Strategic Supply Chain
Procurement Transactional Procurement
Sourcing

Category Suitability Location Assessment

High Level Price Benchmaking In-House or Outsource Solutions

Risk Review

Operating Model Design & Plan

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Functional assessment and design
The offshore procurement office can • An IRSO, normally co-located in GPO can simply have a purchasing
perform several functions as follows: the country where supplies are focus or additionally assist with
manufactured to enable closer supply chain activities or provide a
• An internal IPH:
management of the sourcing activity in technological exchange for both these
With focus on governance, that country or region activities (GEO)
category strategy, and category
management for certain spends • An internal GPO whose sourcing • An external BPO which provides
activities are regional or global support services to the IPH in some
Whose activities include the above which can have a trading delivery or all of category management, data
plus trading services and supply mechanism (they offer a buy / sell price analytics, spot buying, or transactional
chain whose margin is embedded within support. Many companies are prepared
Whose activities include the the price) or a more procurement- to embrace a higher form of BPO
above plus support services such orientated service where they charge outsourcing with one of the key drivers
as contract management, data a commission for the time devoted to being labour cost savings
analytics, and reporting completing the sourcing

• An IPH with some of the above • An external GPO whose sourcing

outsourced; most companies prefer activities are regional or global; the
governance and major direct category
management to be internally managed

Functional design and coverage is best depicted in the following diagram

Functional Scope
Functional Governance ( CPO )
Business Strategy ce
Geographic Strategy our
Technology Strategy Strategy IPH I ns

Strategic Sourcing
Tender Management IRSO
Sourcing GPO
Group Raw Material Buying
ce
Offshore Trading Partners sour
Out

Catergory Management
Vendor Management
Demand Management Category Management
Spend Data Management
BPO
Spot buying
Contract Mangement GEO
Tactical Procurement
Tail Spend Management

DIFOT
Inventory Management Supply Chain
Demand Mangement
Purchasing & Payment
Contract Administration Transactional Procurement
PR to PO Conversion
Invoice Matching &
Processing
Judgement intensive
Transaction intensive

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 Internal and external models Risk review
A global model should consider both is now managed by external parties and Key risks that require mitigation
internal and external (outsourced) rebranded under the banner “Fonssino”. strategies include:
procurement structures and the way
they interlink in their design. Outsourced
BPOs are outsourced across most • Key procurement resources
functions of procurement and at many possess insufficient skills to
solutions exist in all areas of offshore
levels. Transactional procurement can be develop and manage categories
procurement –from sourcing to category
outsourced fully. As the level of judgement globally from the offshore hub
management, supply chain, and business
intensiveness increases in the procurement
processing. The challenge is finding the
functions, the level of outsourcing tends
• Key internal stakeholders are not
right sustainable fit. fully engaged
to reduce with governance normally not
The right offshore model not only applies included. Infosys Portland provides its BPO • Business procurement behavior
to category management strategy but also service from Pune, India. does not change within the
to sourcing, supply chain, and transaction company locally or regionally, so
GPOs, in this paper, represent an offshore
processing strategy. It can also create a full benefits are not achieved
vehicle which identifies the suppliers from
positive ripple effect on the other side
which it will source goods and services and • Suppliers do not provide
of the fence – revenue collections and improved pricing on
capital equipment. It inevitably involves
processing. Therefore, careful review of amalgamated spend
some form of supply chain management.
both internal and external solutions is
needed, some of which may change your
If an outsourced GPO model is adopted (an
• IPH and BPO operational costs
external vehicle is engaged), it is expected increase
risk profile, e.g., alignment with sourcing
that some form of aggregated purchasing
entities can deliver more of a trading
power is achieved by combining the • Higher foreign currency
solution rather than a purchasing solution. exposures arise
volume of several companies.
IPHs tend to be outsourced mainly for
GEOs are technology platforms which • Tax office scrutiny occurs
indirect categories. Infosys Portland
maximise automation in supply chain, Infosys Portland can assist with
provides this service for both direct
contract management, quality assurance, solutions to mitigate these risks.
and indirect categories in Australia and
price tracking, and inventory tracking.
Singapore through its Managed Services
GEOs are used by GPOs and IPHs to ensure
Division.
probity and accuracy on high-volume
IRSOs can be external or internal and can transactions and as a source for price
provide a trading service (buy / sell pricing benchmarking. They are mainly available in
offered) or an advisory service (where a the U.S. and Europe, an example being the
fee is paid). Infosys Portland established Global Healthcare Exchange (GHX).
an advisory arm in China in 2007 which

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Conclusion
The longevity of offshore procurement However, a key due diligence activity innovation, process improvement, and
models such as IPH, IRSO, GPO, or BPO in determining the preferred location is simply proximity to key decision makers.
can be assured if they deliver sustainable to closely examine the organizational You just might find that your suppliers
commercial savings and profitability structures of suppliers with a focus on their are a source of talent as well!
from procurement and operational sales and account management structures Infosys Portland‘s global network
drivers alone - before any financial as well as their manufacturing bases. of offices and expertise can deliver
engineering benefits are included. Ideally, their future structural changes and the best-fit procurement and system
Of course, the strategic direction of one’s developments (e.g., new manufacturing solutions to cater to your global
own company and potential structural bases) should be understood. This analysis expansion plans and address the
change is the first factor to consider will ensure longevity with sustainable omnipresent challenge of finding the
when examining a preferred location. operational benefits flowing from supplier optimal state.

External Document © 2015 Infosys Limited

About the Authors

Paul Millett
Director, Infosys Portland

Paul Millett is a Director with Infosys Portland and manages key relationships in developing, selling, delivering
consulting and BPO services and solutions to key clients across all industry sectors.

Paul has over 17 years of experience with the FMCG industry and has held supply chain consulting roles across
blue chip organizations globally, including Mars Europe, Accenture UK, WCI Group UK, AT Kearney, and Portland
Group. He has developed supply chain and procurement strategies and delivered sustainable solutions in grocery,
retail, FMCG, financial services, building materials, construction, telecoms, distribution, aerospace, healthcare,
government, refining, and steel and mining industries for clients including J Sainsbury (UK), Cadbury Schweppes,
Telecom NZ, Qantas, British Airways (UK), Rolls Royce (UK & Asia Pac), Boral, CSR, Onesteel, Caltex, Virgin Australia,
World Bank, Westpac, and various NSW government agencies.

Adam Crowe
Healthcare Practice Lead, Infosys Portland

Adam Crowe joined Infosys Portland to lead its Healthcare Practice. He is a non-executive Board Director of
Holdsworth Community Services which provides services to the aged and people with disabilities. He is also
a non-executive Director of Two Sides Aust. which is a sustainability advocate which dispels the myths and
presents the facts on paper-based products

Adam has over 20 years’ experience in international procurement, sustainability, and treasury management.
He has led a consulting review of a $1B offshore procurement hub for one of the leading service providers in
Australia and a smaller procurement hub for a leading Australian vitamin company. He was General Manager,
Procurement & Sustainability, at PMP Ltd., for 11 years managing $800M of global procurement exposure,
covering paper, chemicals, logistics, energy, media services, property, and labor. He was a key contributor to
PMP having one of the world’s highest print margins in FY12. Prior to PMP, he ran the global treasury for P&O
out of London managing $5B of treasury and commodity risks. His experience in sustainability covers forestry
and water treatment management.

About Infosys Portland

Infosys Portland is a subsidiary of Infosys BPO Ltd., a part of Infosys Ltd. Its mission is to improve the efficiency and effectiveness of its clients’
procurement and supply chain activities. We achieve this by providing thought leadership, specialist subject matter expertise, a global delivery model,

Portland
and best-in-class technology solutions. By increasing the value delivered and improving the efficiency of procurement and supply chain operations, our
clients are able to achieve more for less.

For more information, contact [email protected] www.infosysportland.com

© 2015 Portland Group Pty Ltd. All Rights Reserved. Portland Group, a subsidiary of Infosys BPO, believes the information in this document is accurate as of its publication date; such information is subject to
change without notice. Portland Group acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document.
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