5 Things a (Procurement) Department Needs to Know About Outsourcing

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Posted by Dennis Grove on 09, August 2012

Photo courtesy of Steve Snodgrass 

 

When managing procurement for your company you should always be focusing on making the most profit and saving costs where possible, the difference between a failing and successful business can be getting this right. Getting procurement right and building competitive procedures can be very time consuming and also involves some investment. Outsourcing procurement is becoming an increasing popular solution for businesses due to this time investment.

 

Here are 5 things a procurement department needs to know about outsourcing:

1. Most companies consider outsourcing to improve overall procurement performance (i.e. achieve a greater level of cost savings on purchased goods and services), to gain more freedom and flexibility to focus on core competencies and to apply limited resources to mission-critical business functions.

 

 

2. Too many companies dive into outsourcing without truly knowing what drives their internal costs or how the organization is performing. Without this level of internal understanding, it is very difficult for managers to assess the value that outsourcing can provide.

 

3. Procurement can be a strategic and high impact function and requires a tailored solution and experienced partner. Specifically we recommend companies look for experience, leveragable infrastructure and focus.

 

4. What does your business do? What is your area of expertise? It probably isnt negotiating with suppliers. This is exactly what a buying group does all day and as you might expect they are good at it. No matter what your purchasing requirement, the right firm will know who the best supplier is for you. They also have expert and experienced staff that will now form your procurement department.

 

5. Some companies such as Amazon, Tesco and Walmart have made their purchasing strategies a competitive advantage.  Procurement can be very complex and cost consuming in many large companies so some of them are outsourcing procurement rather than build their own world-class procurement capabilities.

 

 

Outsourcing often provides a reduction in operational costs of 15-20 percent or more through process standardization and improvement, staff right-sizing and realization of economies of scale. Service providers can also leverage their resources across multiple clients and can be more adaptable in staffing for peaks and valleys in business activity with a client company.

 

Special thanks to: Purchasing and Procurement Center, Outsourcing Procurement – Benefits vs Problems; Pub Articles, 5 reasons to outsource your purchasing – how can you benefit?; ICG Commerce, Procurement Outsourcing: The 10 Things Companies Really Want to Know; and TPI.net, Procurement Outsourcing: Trends, Challenges, Benefits and a Roadmap for Implementation.

Dennis Grove