An increasing number of businesses are considering the benefits of outsourcing as part of their procurement strategy to maximise performance. Read on to find out why.
What do we mean by outsourcing in a procurement context?
Procurement outsourcing is the transfer of specified key procurement activities relating to sourcing and supplier management to a third party. Businesses will sometimes do this to reduce costs or, often in the case of procurement, to add specialist skill sets to their procurement department. Typically the most common outsourced activities are indirect materials and services that are commonly referred to as indirect procurement.
What are the main benefits of outsourcing?
Many companies regard outsourcing their procurement processes as comparable to outsourcing their legal or IT functions to in effect complement the existing expertise they already possess. This is in contrast to when businesses outsource aspects of certain functions, such as HR for example, purely to cut costs – typically through headcount reductions. So, it can be a way of improving existing systems and processes rather than a cost reduction measure.
Outsourcing also allows the business access to highly skilled procurement experts in instances demand or even cost would not justify an internal resource. In return, it provides the company with access to highly-skilled procurement specialists who typically have access to extensive and relevant networks. Depending on the instructions/remit they are given, these experts can be extremely results driven and completely focused on delivering specific KPIs.
Procurement outsourcing is the transfer of specified key procurement activities relating to sourcing and supplier management to a third party.
Which businesses are particularly interested in outsourcing?
Larger businesses are most likely to consider outsourcing. Those that are looking to overhaul/transform their procurement functions regard it as a particularly attractive option.
Employers exploring the possibility of outsourcing are typically faced with a specific question – is the existing procurement department big enough to incorporate category specialists? If a company has a multimillion pound spend it is an opportunity to drive cost through procurement by implementing category management.
The need for category specialists are highly sought after due to their extensive network and they can quickly add value as these professionals often have a strong understanding in their core market making them attractive to potential employers.
How long does it take to implement an outsourcing model?
Exactly how long it takes will depend on both the size of the company and how extensive the outsourcing programme is. Businesses adopting an outsourcing model usually introduce it slowly over a sustained period of time. Throughout the implementation stage, employers generally favour testing aspects of the model bit-by-bit rather than undergoing a vast transformation programme in one go. This is something to consider if your business is looking to outsource its procurement processes.
What are the main disadvantages?
Although outsourcing can result in the procurement function becoming more sophisticated and specialised, there can be concerns that the business will lose the control it retains from an internal resource. On the flip side, a business will be employing an expert who can be instructed to be extremely results driven and delivering very specific KPIs. In addition, it will also be exposed to a constant stream of new ideas from experts that are well connected and much more aware of the latest procurement trends. Many employers therefore consider this a sacrifice well worth making.