Procurement Outsourcing

Organizations have been searching hard to find ways to reduce cost in every sphere of business including procurement. In recent past it has been identified as a major service that can be outsourced. Though companies are not outsourcing all the functions of procurement but non strategic, low volume, low spend and non value added activities are being outsourced quiet aggressively now.

The most common example of Procurement Outsourcing are issuing of PO or sending RFQs and receiving and compiling quotes from the suppliers. There are numerous companies providing strategic procurement systems wherein even the strategic procurement is also being outsourced using radical new technologies. The prime example is the whole procurement processes being driven by third party using e auction process.

Benefits of Procurement Outsourcing

The benefits of doing outsourcing of procurement are many like:
1. Manpower Reduction.
2. Better spend visibility
3. More savings using better negotiation tools and global supplier base( finding supplier base in Low cost countries)
4. Lower Procurement costs.
5. Low Investment and Better Flexibility in Procurement process.

Increased global competition is forcing various organizations to move towards new and better technologies in procurement. During recent times companies are cutting manpower and focusing their resources on key value added strategic work. Wherein the key decisions are taken by the company employees and data compilation and data mining activities are outsourced. Another point in this regard is the transaction cost. Through outsourcing of non core activities this cost can be reduced in great deal.

Steps to follow to achieve Procurement Outsourcing

The benefits are huge but taking a decision to outsource has to be taken after due deliberation.

1. The whole process starts with gathering of data regarding current procurement practice. A detail spend analysis report is to be formed to determine low volume and non strategic commodities. The next step is to analyze the data to determine savings opportunities which can be direct or indirect savings. A clear and visible long term saving targets should be formed.
2. Organizations need to be clear about the scope of the contract agreement. Contract should define how the responsibilities will be divided between the client and the service provider.
3. The most important aspect is the relationship as procurement function is very important, it is very important to have a strong healthy relationship between client and service provider.
4. Finally to oversee that required goals are met a key person from parent company should be with the service provider to oversee implementation and smooth achievement of companies goals.

Two aspects should be kept in mind before embarking on Procurement Outsourcing. First the data used to identify the function to be outsourced has to be very discrete and detail i.e. The right commodities should be outsourced and the other aspect is the fact that procurement is very process orientated operation. Slight deviation could make a very serious problem for the organization hence sufficient safeguards should be placed in the Outsourcing process to achieve the desired results.

Summary

Procurement Outsourcing is basically about generating value in the procurement function. It is not only about headcount reduction or passing your non strategical operations to third party but is about bringing expertise, newer technology and highly efficient processes into your business model thus making your company fit to take challenges of future (and current recession).