Why are businesses outsourcing their procurement activities?

  • Published on: 25 April 2016
  • By: Admin

Improving bottom-line performance is not only achieved by increasing sales revenues, but more by reducing existing business expenditure, which is all net profit. 

One strategy to deliver both outcomes is procurement outsourcing or selective outsourcing where you seek guidance on strategy or a single procurement event. Outsourced procurement focuses on re-designing business processes in order to radically improve operational performance.  Procurement outsourcing is a tried and tested approach that can unlock significant unrealised savings and value streams.

Stakeholders require highly competent sourcing services that will consistently achieve agreed financial targets and mitigate supply chain risks. An increasing number of companies are considering the benefits of outsourcing as part of their procurement strategy in order to maximise company performance. They do this either to reduce expenditure or add specialist skill sets to their existing procurement department.

Outsourcing is about:

  • Business efficiency
  • Access to broader and additional knowledge, not currently resident within your organisation
  • Controls that are appropriate to your company
  • A simple procurement framework that is easily understood by the whole organisation
  • Management review of the entire procurement infrastructure and strategy
  • The ability to show how good your procurement function is

In return, you will:

  • Add value to your company’s bottom line
  • Increase your attractiveness to your clients
  • Increase business competitiveness and differential advantage
  • Give your sales team an added confidence boost
  • Add to your company’s reputation

Up to 70% of existing contracts and agreements could deliver much greater results with just a few basic changes to the way a deal is structured, contracted, managed and governed. Poor results are generally due to poor change management, but one thing to acknowledge - change is inevitable and always necessary.

Ensuring that communication is kept at the heart of the whole process - from making the business case, negotiations, implementation and even re-negotiation - should remain at the centre of all activities.

What are the main benefits of outsourcing your procurement?

Procurement outsourcing is the transfer of some or all of your procurement activities relating to sourcing and supply management to a third party. Many companies are now considering outsourcing their procurement processes in the same way they would their legal or IT activities. It is a way of complementing and improving their systems, processes and existing expertise, in addition to a cost saving exercise.

Outsourcing utilises highly skilled procurement experts that have access to extensive, relevant networks and a commercial knowledge base. Depending on the instructions/remits given, these experts can be extremely results driven and completely focused on delivering specific measurable KPIs.

Some businesses may be concerned that they could lose some of the control that is currently retained by internal resources. The reality is that outsourced procurements are always better defined and documented than when delivered purely by an internal resource. By outsourcing procurement, companies are able to concentrate on their core capabilities, confident that their purchasing is being optimally and profitably managed. These external experts are exposed to a constant stream of new ideas and concepts, which your current suppliers are unlikely to volunteer without you initiating these negotiations and delivery models.

Which businesses are particularly interested in outsourcing?

Larger businesses are more likely to consider outsourcing some, if not all of their procurement functions. However, smaller companies experiencing growth, but have insufficient internal purchasing resources, should also considering outsourcing to take advantage of external structures and expertise. Companies looking to review/transform their procurement functions regard outsourcing as a particularly attractive option. Exactly how long it takes will depend on both the size of the company and how extensive the outsourcing programme is.

Often, good procurement strategies can be the difference between a profitable company and a failed business.

Businesses adopting an outsourcing model usually introduce it slowly over a sustained period of time. Throughout the implementation stage, employers generally favour testing individual aspects of the model bit-by-bit rather than undergoing a vast transformation programme. This is where outsourcing specialists can manage procurement processes in a more professional and timely manner.

Deciding which outsourcing service to choose is never simple, especially where too many options exist and the final outcome is unclear.

For further information on Outsourcing please visit our Outsourcing page

Email [email protected] or call 03333 555 111 for all enquires.