Modern-day organizations are considering sourcing activities as a viable means to reduce their production costs. If the manufacturing costs are lowered, marketers will sell their products and services at lower prices than their competitors. This will intrigue more consumers to buy a particular product or service. Procurement outsourcing is often undertaken by very large companies to save money. In this case, business firms are focusing on cost saving, profit maximization, and compliance more than anything else. Often good procurement strategies play a determining factor for companies piling significant amount of profits. One cannot deny the several benefits associated with outsourcing of procurement functions. However, there are also challenges involved in it. Organizations need to strike the right chord before making a decision.
Benefits Associated with Outsourcing of Procurement Activities
The major benefits associated with outsourcing of procurement activities are listed as follows:
With direct material sourcing activities, organizations get a chance to improve efficiency in an area that has seen limited change. Nowadays, more businesses are looking to streamline their procurement function while bringing third-party providers who can implement the best practices. Besides standardizing processes, centralizing technologies and operation s is also needed for significant savings. The best approach is to purchase outsourcing services as it smoothens the process for internal stakeholders in more ways than one. In this case, internal stakeholders need to deal with a single point of contact rather than handling multiple suppliers.
Spend Visibility And Control:
This is another prime benefit of outsourcing procurement services. New-age firms are adopting innovative means for gaining better visibility over spend. This improved visibility enables business firms to make better decisions. It also helps an organization to gain control over its operations. Most of the time, companies bring in a third-party provider to enforce contract and process compliance. Furthermore, it helps companies to manage their spend more effectively rather than trying to bring about changes from within.
Improved Technology And Analytics:
New-age businesses are realizing the fact that unifying and digitizing various functions within direct procurement hold the key when it comes to getting benefited from third-party consultants. More often, these third-party service providers provide unified solutions that treat sourcing, supplier management, category management, and spend analysis as components of one integrated platform. With the emergence of new technologies like cloud-based software, big data analytics, machine learning, and artificial intelligence, companies are overhauling their procurement functions. Nowadays, several advanced reporting tools have emerged without big-ticket upgrades that help companies to channelize their procurement strategy in the right direction.
Expertise And Experience:
It is obvious that not every organization will have in-house expertise in every area of procurement. At the same time, businesses are feeling the urgency to stay updated considering the fast-evolving market environment. Outsourcing is a solution to these issues for most companies. With the assistance of third-party providers, a firm stands apart from its competitors while gaining specialized skills, market intelligence, supply networks, and market leverage. Furthermore, this translates to higher discounts, better negotiation power, favorable contracts, and improved analysis. It also allows an organization’s internal team to concentrate on strategic and core activities.
How to Make the Most of Engagements Relating to Outsourcing of Procurement Activities
You need to adhere to the following steps to make the most of engagements relating to outsourcing of procurement activities:
Assess Your Business Needs And Set Goals:
This is undoubtedly the first step you need to accomplish. Analyze the areas of procurement you want to streamline through third-party solutions. Also, consider whether you want to outsource the identified functions or not. Thereafter, you need to develop your procurement outsourcing strategies while aiming on the outcomes through outsourcing operations.
Involve The Stakeholders:
Outsourcing of procurement functions affects everyone involved in the supply chain. Ranging from manufacturing operations to logistics providers, outsourcing procurement functions for your firm will be a big change. In this case, you need to deal with conflicts with internal stakeholders as imposing a decision arbitrarily is not the solution.
Identify The Most Suitable Provider:
You should select the appropriate service provider for your business. Before choosing a third-party, do all the research related to them. After researching, shortlist some of them and follow up on every reference given. The best approach is to look for references from companies that have been operating for a considerable period with the potential provider. This will give you an idea of their service quality. Not only you should choose a reputed service provider but also don’t forget to match the requirements of your organization with their capabilities.
Execute Detailed Agreements:
No planning is effective without proper implementation. After hiring a service provider, create a strong agreement emphasizing its scope in lucid terms. You also need to consider the aspects of KPIs, clauses, and incentives while reducing the chances of miscommunication. You need to be clear about what you want to achieve. Stating it in proper terms to the service provider can do the job for you.
Challenges Associated with Outsourcing of Procurement Functions
The challenges associated with outsourcing of procurement functions are listed as follows:
Continuity Of Service:
You should ensure that products are delivered on time and as per the requirements of the customers. A detailed transaction plan during the business operation can come in handy.
A Reduction In Control:
No doubt, outsourcing loosens your grip over the day to day purchasing activities of your firm. To address this problem, you should resort to a reliable third-party and have a measurable and enforceable service level management.
This is another major challenge involved in outsourcing of procurement functions. You should manage the outsourcing procurement on a continual basis and ensure compliance to your contracts and SLA’s.
Outsourcing of procurement activities has both its pros and cons. For better insights, you can take suggestions from Dragon Sourcing. Striking the right chord is desirable when it comes to outsourcing procurement.