Why businesses are becoming more open for procurement outsourcing?

Why businesses are becoming more open for procurement outsourcing?

May 12, 2018 Off By Aval Sethi

Research studies are indicating towards an unprecedented level of interest in the field of procurement outsourcing and there has been a growth projection of 15-50 per cent over the next three years considering that performance levels remain as per the expectations of the stakeholders.

The most direct connect comes from the multi-fold increase in the number of inquiries for procurement outsourcing received by solution providers including Protaiga.

Though procurement outsourcing seems to make headway, there are still organisations struggling with the concept and how it is relevant for their organisations.

Here is a compilation of frequently-asked questions (FAQs) on procurement outsourcing. The initial trigger for outsourcing procurement and the final decision that actually makes organisations to opt for it are vastly different. The first trigger is to reduce labour costs. But that changes once organisations give thought to it and understand fully well as to how procurement service providers’ capabilities are essential for organisations as they complement the in-house talent pool. These decisions are driven by three objectives:

  • Improving overall proficiency of procurement: It boils down to achieving more with lesser costs incurred on procuring goods and services. Without any additional internal fixed investments, the focus is on assessing best-in-class tools and resources.
  • Focussing on core competencies: Focus on core competencies and achieve more freedom and flexibility in terms of functioning without inhibiting performance. This also frees limited resources to be applied for the organisation’s critical functions.
  • Greater autonomy and control: When reporting on compliance to service-level agreements, vendor contracts and pricing. This can be done in addition to the internal procurement policies and procedures of the organisation.

In order to realise where to begin, before moving on to more strategic considerations, study the current data sets. A good understanding of the current state can help procurement organisations in capacity building, developing capabilities and achieving improvements regardless of outsourcing’s investigation. This timely procurement of information can help the outsourcing relationship to become more transparent and change the design of it. The current state information includes spends which are divided by locations and categories; process, organisation and technology landscape; transaction volumes by type in terms of spot buy, P-card, non-catalog, PO and catalog; the procurement activities that are differentiating factors’ major activities, procurement roles and the percentage of time on each of the strategic scope questions; scope of locations and categories and split of responsibilities between provider and customer.

Scope of outsourcing relationship

The scope determines the delicate balance and careful consideration. Organisations are looking to create optimum value through outsourcing procurement. This makes it essential for the relationship to have a process scope and a broad category. Organisations must strike a balance between the organisation’s experience and the desired value from the relationship in order to enter into an outsourcing relationship.

Based on a set of processes and categories, organisations define the scope of outsourcing relationship. The greater the autonomy that a procurement service provider has over the categories managed, greater will be the scope. But small pilot programs rarely work because of the amount of commitment, level of results and efforts, and need success on the cards. The most successful sourcing relationships are those that strike a balance between the company’s goals and capabilities and the service provider’s key strengths.