Xchanging: BPO Elevates the Bottom Line - Denis Royer

FDs have become familiar with many kinds of business process outsourcing, but increasingly they are looking to service providers to improve procurement. Xchanging’s Denis Royer tells FD that, by managing internal and external spend, procurement BPO offers a step up in efficiency that goes straight to the bottom line.

The use of business process outsourcing (BPO) for finance and accounting processes is nothing new for most finance directors, but they are showing a greater sophistication in their approach to engaging external service providers.

Consequently, they are turning in greater numbers to spend management and procurement BPO. The potential to not only improve efficiency within their organisations, but also to achieve greater clarity and control of external spend, is too great to ignore.

‘We interact with CFOs who have good awareness of finance and accounting BPO, particularly in larger organisations, but procurement is next on the list. CFOs are involved in variations of spend during the budgeting cycle, and they are interested in optimising the value of third party spend and internal costs,’ says Denis Royer, managing director, Xchanging, France.

‘The pressure on cost savings is always a strategic subject for the CFO in any organisation. Procurement outsourcing has grown because of the size of the prize. Just like other kinds of BPO, with procurement you are dealing with people and processes, but you have also got perhaps a billion euros of spend to manage, so procurement has a wider scope in terms of its potential,’ he adds.

Xchanging, which is classified as one of Europe’s tier-one procurement services providers, has a network of over 100 procurement professionals in Europe, handling over £1 billion of spend, as well as 90 procure-to-pay specialists managing over £1.5 billion of spend.

The company has three distinct business lines – financial services, insurance and industry agnostic BPO – and within the latter category procurement is already a major component, growing stronger each year.

Having built a procurement platform with BAE Systems, with which Xchanging has a ten-year contract for the sourcing of £2 billion of indirect spend across 22 categories, the company decided in 2001 to bring the platform to market and extend its use to new clients, geographies and industries.

Xchanging now has multi-sector expertise, with experience in industries such as manufacturing, retail, banking and IT. Having started in the UK it now has operations in France and Australia, from where it provides services to a wide range of geographies including Belgium, the Netherlands, Germany, Spain and India.

Clear vision and cost control

The deals in which Xchanging is involved (see box, opposite) show that it has high-calibre, specialist expertise in maximising the value of third party spend through sourcing.

‘Better sourcing involves external interactions, but we also act as change agents within the organisation. The CFO is our main strategic partner, because he is working to optimise how money is spent internally, which is where the real rewards lie,’ notes Royer.

Finding the right procurement strategy for each client demands a great deal of flexibility on the part of the service provider. Royer sees many finance directors focusing on the need for procurement spend management and notes many ways in which efficiency can be generated.

He cites, for instance, the use of mobile phones within an organisation. Typically, a cost cutting exercise in this area would focus on assessing mobile providers and negotiating the best deal on the contract. For Royer, however, this addresses only the external part of the spend, and ignores the potential to make further savings through managing internal policy for the use of mobile phones and ensuring compliance within the client company.

Xchanging also focuses on procure-to- pay (P2P) services, which cover all processing aspects of procurement. Clients transfer control of their purchase ledger, which Xchanging can maintain and improve using its Sarbanes-Oxley compliant service platform.

Furthermore, the rightshoring approach, which uses the appropriate blend of on-site, nearshore and – for more transactional processes – offshore expertise, allows it to offer a balance of cost and control to suit each client.

‘Most areas of BPO are transactional so the focus is on changing processes to increase productivity or moving them offshore to cut costs, but they mainly focus on the existing structure. In procurement you are not only addressing the company’s costs, but also the cost of third parties,’ says Royer.

The benefits of such bespoke solutions, however, demand a different kind of relationship between client and service provider – a true partnership. ‘Each engagement with the CFO will be tailored to the individual company’s needs in terms of the geography, the parts of the service that are taken up and the technology development. Historically, when companies looked at procurement BPO they immediately turned to the transactional part, which is less sensitive and involves a smaller value being contracted out. It was less strategic and was often done just to get rid of a headache,’ notes Royer.

He points out that companies would usually consider finance and accounting processes to be easier with fewer suppliers, so would hand over the lower end of these processes, where there is smaller spend, to service providers.

‘Now, they see that the ability to improve EBIT is in sourcing, not the transactional work. Sourcing addresses third party spend and that is where the money is, so we are seeing a shift in attitudes,’ he adds.

The power of partnership

Procurement BPO enables the client organisation to benefit from a rapid ramp-up in sourcing expertise, process management and technology. This makes outsourcing the simpler option for the finance director. For Royer, it is vital that the service provider acts as an extension of the client organisation, as he sees the close relationship between partners greatly improving spend visibility.

Furthermore, he has seen the advantages that accrue when reporting is no longer the responsibility of the client company’s internal team, which can focus on more value added activities. He also feels that more companies in Europe are ready to partner with procurement service providers, in a largely untapped market.

Xchanging’s expansion plans echo this belief. Its recent acquisition of Mercuris – now known as Xchanging Procurement Services France – gives it a strong foothold in France, where it already has €500 million of annual spend under management.

‘The development of BPO, and particularly procurement BPO, is at the pioneering stage in France – and mainland Europe in general – compared to the US or the UK. So, it is a very open market and there is a lot of opportunity. We took a strategic decision from a UK-centric service provider to become a global player,’ explains Royer.

Major French bank Caisse D’Épargne was the principal client of Mercuris and a major stakeholder, and it has recently extended its outsourcing contract with the renamed company until 2011. From this base in France, along with its existing European operations, Xchanging is aiming to bring its experience to bear on the nascent European market.

The move is based on a sense that the tide of interest is rising, and that a strong track record counts in attracting clients. The potential benefits of procurement BPO are clear, provided that an organisation is willing to enter a real partnership.

‘Procurement BPO is our core business, so we can invest in skills and resources, which companies find hard to do for themselves,’ says Royer. ‘It brings incremental benefits year after year. We ensure those savings hit the bottom line.’

Though he acknowledges that there remain some cultural differences between the UK and the rest of Europe that mean service providers often need to establish a track record in the country in which they target clients, the Mercuris acquisition has taken Xchanging a long way towards establishing its local reputation as well as its global capability.

For Royer, the expertise is available to help large organisations transform their procurement processes. All that remains is for finance directors to buy into the opportunity that awaits them.