As companies continue to look for ways to streamline their businesses, unearth organizational efficiencies, maximize both profit and performance, outsourcing the production of their products and services and other key procurement procedures become a viable – and realistic – option worth considering.
Largely speaking, procurement outsourcing (PO) can be referred to as the transference of specified crucial procurement undertakings related to sourcing and supplier management to a third party.
The questions most C-suite executives, especially Chief Procurement Officers, have to contend with are the advantages and disadvantages of pursuing such business endeavor. For the sake of this post, we’ll be focusing on the former.
Specifically, are there any profound merits to outsourcing procurement activities?
Let’s examine a few worthwhile points.
- Reduced overall transactional procurement costs
By the very nature of subcontracting any business activity, companies expect to see a lower transactional costs – this low-price byproduct is something CPOs also expect when they consider procurement outsourcing measures.
Remember, the costs to run an internal department – let alone a procurement department - isn’t cheap. You’re looking at not just only the costs associated with sourcing and supplier management, you’re considering employee costs: wages, medical benefits etc.
By subcontracting this venture, companies end up only paying for the PO services and in turn, save a ton of money – which can be re-distributed elsewhere in the organization.
- Exposure to highly skilled procurement professionals
This by far is one of the chief benefits of outsourcing procurement undertakings: businesses are afforded the access to incredibly proficient procurement experts – professionals who have years of experience and know-how under the belts – especially in situations where internal demand or costs are not exactly justifiable.
What this offers (in addition to skilled talent) is access to a vast repository of network contacts - any CPO worth his/her salt would tell you that this is of grave importance.
The reason being, relationship building is a vital part of successful procurement, and such requirement isn’t as easy as it sounds: cultivating and nurturing such rich relationships takes a lot of time, and as such, making this type of access extremely valuable to the business considering such a move.
- Access to richer market and supplier information
By outsourcing your procurement activities to skilled professionals with rich contacts, your business would also be granted access to a robust amount of competitive marketing intelligence – which they either wouldn’t have typically had access to or would have had to pay exorbitant amounts for. This easy access to such information would prove beneficial for current and other future procurement endeavors within the organization.
- Leveraging external expertise for internal learning
With the access to such skilled professionals, Chief Procurement Officers can actually leverage this arrangement as a way to pick their brains, glean from their wealth of experience, and parlay these learning into developing and growing the internal procurement department.
Taking advantage of these ‘consultants’ can play a vital and strategic role in the event that the organisation in question decides to end the subcontracting relationship.
- Offers an amplified opportunity for internal process standardisation
Procurement outsourcing offers Chief Procurement Officers – and by extension other C-suite level directors - the ability to continuously “trim the fat”, streamline and standardise their internal business operations: especially since they’re required to do more with less.
With the aforementioned explanation, it’s easy to understand why a business would gravitate towards procurement outsourcing as a tactical move to gain a competitive advantage by lower cost of operation and value creation.
So, to answer to initial question – are there merits worth considering to subcontracting key procurement undertakings?
The answer is an emphatic yes!
Written by Pip Spibey-Dodd @Locomote