Procurement Outsourcing Strategies
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Procurement outsourcing is a situation where quantified procurement activities relating to getting a supplier and supplier management are shifted to the third party. This is done for many reasons, which vary from one company to another. Some of these reasons could be cost reduction incurred in supply or either to stiffen the company’s attention on its core capabilities. Outsourced procurement companies make sure that the companies that source them profit from knowledgeable procurement experts support and know-how. This means that the companies doing procurement do not need to create a procurement team from within the company. This also means that procurement outsourcing saves on time which would otherwise be spent to structure the team. It also saves the time this team would require to gain skills on procurement. This, therefore, means that outsourcing procurement may best apply to companies that do not have internal competencies on procurement and they want to minimize the overall cost. This may also apply in companies which have a procurement department but want to get extra expertise in a particular sensitive area. Companies may also opt for external procurement if they want to compare the competencies of their procurement team and those of the external agency.
It is clear that the need for external procurement services has led to the emergence of procurement service providers. These are only committed to procurement, and they have advanced a strong know-how in procurement. These companies do the job and would in turn ask for a fixed compensation after they have delivered their services. These companies also offer extra services such as spend study or opportunity valuation.
Procurement outsourcing is a long journey that involves a lot of steps and many activities in every step. To begin with the evaluating approach options are reviewed by the management team and the necessary amendments made. Whatever needs to be added is added and whatever needs to be removed is removed. There is also vendor selection and contracting which are vital activities prior to the purchasing process. This is mainly done by the outsourced agency. These two stages are crucial as they profoundly determine the success of the procurement process. These decisions are done by the top management although views of other stakeholders are put into consideration. Several factors are weighed, and advantages and disadvantages are considered.
When approaching the procurement outsourcing, there are two principal options. The company may opt to consult, fix and then outsource or simply Consult, outsource and fix. These two approaches have their own advantages and disadvantages. The top management has to weigh both options and see which one would best work for their company
Consulting phase is a fundamental requirement before implementing any procurement outsourcing. At this point, the top management together with the specialists of the external agency creates a thorough inventory of their “as-is”. This includes people who would be involved, the processes that would be incorporated, systems and key projects involved in the entire process. Creating a thorough inventory helps to develop comprehensive blueprint of a future ecosystem of the organization. During fixing, necessary adjustments are made, and this gives the process a green light to move continue.
Once the company has decided to use procurement outsourcing, then, this means that most of the decisions regarding the procurement are left in the hands of the external outsourcing agency. The company only selects the agency to outsource, and it gives it the requirements and expectations of the procurement. The external procurement agency sends the requests for proposal for vendors to submit their proposals. The agency then interviews all of them and selects the most appropriate vendor to do the work depending on the specified requirements. Quality control is mainly done by the organization and also the outsourced agency. It is worth noting that the outsourced agency is accountable to the employer, and therefore, quality is not compromised.
Challenges In Procurement Outsourcing
Procurement outsourcing has its own challenges. To begin with, there is time wastage when shifting from one service provider to the other. Secondly, the company that decides to use procurement outsourcing loses control and it has little power in deciding what is urgent and what can wait. At the same time, outsourced agencies may not comply with the standards of the organization. Procurement outsourcing may make the existing procurement officers in the organization to feel ignored. They may also feel underutilized and may not have the morale to do the job when required to do it in the future. They may feel that their competency is questioned, and this may affect the company’s productivity in the future.
However, procurement outsourcing has a lot of positive impacts on the company’s productivity. There is cost reduction as there is no training; less space is required and better discounts are encountered. In addition to that, there is a wide range of marketing knowledge, highly skilled experts in the specific field, improved communication between the purchasing experts and the company’s staff and many more.
Strategic Alliances And Procurement Outsourcing
This is a situation where two trading partners come together and collaborate in different functions undertaken on a daily basis. They collaborate in marketing, in quality management, planning and even inventory. These companies do so as to reduce the cost incurred, improve the quality of production and also to enhance flexibility to production of new products. However, these strategic alliances have got their own challenges. In procurement outsourcing, it may be hard to agree on which external agency to hire. At the same time, not all parties would advocate for procurement outsourcing as both have different views. The two parties may not also agree on cost sharing as both are not equal in terms of production. One company may leave the burden of procurement on the other company. They may not agree on who should control quality of the products.
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