01 September 2008 | Paul Snell
Telecoms firm O2 has completed a deal to outsource £350 million of its indirect procurement.
The company is to hand over indirect spend in categories such as non-core IT, HR services, property, facilities management and professional services as part of the reorganisation of its procurement function.
According to Simon Lee-Smith, the firm's CPO, outsourcing some indirect categories will provide economies of scale, more flexibility and access to greater expertise.
Wider changes in the function include doubling the number of buyers and increasing control over spend (News, 19 June).
Outsourced purchasing provider 4C won the contract to manage the spend. "This brings our outsourced client spend under management to over £1.5 billion of indirects," said Johan Denekamp, the company's CEO.
"This allows O2 to access economies of scale with other client teams."
Andrew Loken, managing partner of 4C, told SM he expects the total spend managed to increase. The deal will also see 4C running a help desk for O2 internal customers dealing with procurement.
"It's a big driver [for O2] to get compliance to third-party agreements. We will provide telephone and web support so people know which suppliers to go to and the right way [to handle it]," said Loken.
But experts said driving compliance through using an outsourced provider can present challenges. Andrew Marsh, BPO principal consultant at Atos Consulting, said "There can be confusion, and the success will depend on how it is positioned and branded."
And Rachael Stormonth, vice-president at analysts NelsonHall, said it would be a challenge for a small service provider such as 4C and much would depend on the compliance culture at O2, rather than simply the systems used.
But Marsh added that outsourcing was often used to publicise that change was taking place in a department.
Deutsche Post World Net (DPWN) became the majority shareholder in 4C at the beginning of the year.
But Loken said the group remains independent when running procurements for clients and other members of the DPWN group are "treated just like any other supplier".
* Coors Brewers has switched its outsourced print spend to Williams Lea, another business in which DPWN has a majority stake, in a three-year, seven-figure deal.