Procurement Outsourcing

October 19, 2017
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When Is It Time to Think about Procurement Outsourcing?

Time to Think about Procurement Outsourcing

If you are experiencing limited internal resources and expertise, think about procurement outsourcing to drive improvements and savings.

Is your team increasingly bogged down with tasks that fall outside of what you need to do for your company to run?

If you have limited internal resources or you’re meeting roadblocks in expertise when trying to complete that work, it may be time to consider procurement outsourcing.

Ready to learn more but haven’t had time to figure out where to start?

We’ve provided everything you need to know in one short blog post. Keep scrolling to get started.

In Brief: Why Choose Procurement Outsourcing

Every company has core spends and core processes. It also has non-core spends and processes.

These non-core activities aren’t critical to manufacturing or production. Yet they eat up financial and human capital that could be better spent on the most important tasks.

Procurement outsourcing allows companies to reach out to a pool of experts in policy and process to ensure their procurement strategies are efficient and on-target to meet performance goals.

Ultimately, procurement outsourcing allows companies to cut costs and enjoy savings. It does this by shifting non-core work to companies best suited to the task.

What Is Procurement Outsourcing?

Procurement outsourcing occurs when you transfer specific procurement activities – like category management, sourcing, and transaction management – to a third party specialist.

The specialist company than completes those tasks the same way your company would. Doing so gives you both the time and money to focus on your core competencies.

These specialist companies are procurement service providers. Most of these companies can be placed into one (or a combination) of the following categories:

  • Strategic services
  • Tactical services
  • Transactional services

Strategic services provide several projects including strategic sourcing projects, end-to-end category management.

Tactical services can take over spot buys, support your internal category managers, or manage a low-dollar ‘tail-spend.’

Transactional services support everyday buying procedures like processing your purchase orders or influencing compliance with preferred suppliers.

Benefits of Procurement Outsourcing

Imagine removing the non-core functions you and your team deal with. What if the tasks that bog you down were handed off to professionals?

The removal of these non-critical tasks from your plate is just one of the benefits you could enjoy.

Here are a few more of the benefits of procurement outsourcing:

Less Training In Non-Core Areas

There’s no need to spend time and money on training on those tasks to keep your internal team up to date on new procedures and technologies. The specialist team does all that on their own to stay competitive.

Streamlined Operations

Operations within your department or within the firm as a whole can be streamlined to boost overall efficiency.

Non-Core Activities Benefit from Greater Efficiency and Productivity

Outsourcing firms boost efficiency and productivity in outsourced activities. Why? Because the specialist isn’t bogged down by your core tasks.

Adapt to New Technologies Faster

Specialist firms adapt to change faster because they don’t need to worry about the internal hierarchy at your firm.

They’re also more focused and more likely to be aware of major and minor industry changes before a busy internal team can get there.

Better Team Management

Handing over difficult processes removes stress and alleviates some team management issues.

Meet Budget Goals

Overall operations costs fall and it becomes easier to meet department and organizational budget goals.

At the end of the day, it’s unrealistic to expect to keep up with the pace of change in both your core markets and non-core processes. Spreading your resources too thin means your company will have to make more tough decisions over the next few years.

You won’t be able to avoid those difficult decisions completely. But you can stave off major issues without letting non-core, but important, work fall to the wayside.

What Are the Risks?

Outsourcing any operation comes with risks.

Here are a few things that could come up when you outsource your procurement functions:

Security and Confidentiality

Outsourcing presents security and confidentiality risks that you don’t face within internal teams.

If you’re outsourcing any tasks associated with employee account management or finances, it will be critical to thoroughly vet the partner. This is an essential step to protect not only the company’s privacy but the privacy of individual employees.

Leadership Issues

Not all managers are suited to or even aware of how to manage outside providers. Just because these tasks are outsourced to competent teams doesn’t mean you don’t need to check up on them.

Redundancies

While outsourcing presents opportunities for key staff to focus on key activities and reduce their workload, there are sometimes other members of staff whose function supports the work being outsourced.

In some cases, those employees are made redundant, hours are cut, or contracts are re-structured to address the new real needs of the company.

Managers and company leaders may end up trading leadership issues with issues in boosting employee morale.

Being One of Many

The specialist you hire won’t put all their eggs in one basket; they’ll have multiple clients.

Having several clients is good business practice. But it also means you’ll have to share your time with other clients.

This can be problematic if you experience an issue in-house. You might need more from the outsourcing team than they are able to give because they’re dealing with issues with another client.

Hidden Costs

Outsourcing allows you to slash your budget and make the most of your money, but that doesn’t mean it is free from costs of its own.

In some cases, legal costs arise as a result of signing a contract. These can be identified in a study before you sign away your work to a firm, but they’re something to be aware of before you start looking.

Do the Benefits Outweigh the Risks?

In most cases, the benefits of outsourcing far outweigh the risks, especially if your firm has taken the appropriate steps to identify and mitigate those risks.

Ultimately, procurement outsourcing presents new opportunities for teams and organizations who want to focus on their core tasks and improve their bottom line.

Is your company considering outsourcing non-core procurement tasks? What’s your motivation? Share your stories and questions in the comments below.

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