Fast-growing companies that want to adapt to the fast-changing external business environment are increasingly relying on Business Process Outsourcing (BPO). Such companies are outsourcing some of their important business functions like marketing, IT, human resources, and customer support. Procurement outsourcing offers many benefits like leveraging increased volume, reducing cost on overheads, better supplier relationship management, and enhanced KPI tracking. 

Procurement outsourcing has its own set of advantages and disadvantages. If you can maximise its benefits and minimise the risks, it can push your business to a whole new level of growth. 

What Is Procurement Outsourcing? 

In procurement outsourcing, businesses generally shift those functions that they believe are non-core to a third party. However, in certain cases, they also outsource strategic functions like RPF/bid management, supplier relationship management, contract negotiation, and spend management. 

If you can identify the reasons behind adopting procurement outsourcing, you will be able to calculate whether the benefits you get far outweigh the costs. Some reasons why a company may outsource material procurement to a third party include the following: 

  • Need to reduce the wage bill. 
  • Supplement in-house procurement expertise. 
  • Reduce tail spend. 
  • Leveraging volumes. 

By carefully analysing these important requirements, you will be in a better position to do a cost-benefit analysis. 

Key Benefits of Procurement Outsourcing 

Here is a list of benefits your company can get through procurement outsourcing. 

Leveraging Large Volumes and Cost Savings 

When you outsource your procurement process to another company, they can make high-volume purchases and leverage their huge order to maximise their savings and provide your goods and services at a lower cost. In this way, you get the same quality material at a lower price from a procurement agency. 

Using the Latest Technologies to Simplify Supply and Spend Management 

Procurement companies use the latest technologies to improve their supplier relationship management and spending management. This software is quite expensive, and a small or mid-size company may find its cost prohibitive. Accessing such software can help your company to streamline the supply issue and reduce organisational costs. 

Access to Domain Experts 

In strategic sourcing and direct procurement, your company can benefit from the advice given by experts in this field. Creating such expertise in your in-house team will cost you resources and time. If you do not have the resources for giving regular training to your in-house team members to keep their knowledge base updated, outsourcing such procurement processes offers a low-cost solution. 

Strict Budget Spending and Regular Reporting 

For a small company with limited resources and a small team, KPIs can become a big challenge. For such businesses, keeping track of all the reports can become very hard. However, when you outsource your procurement process to a third party, they can provide you with regular KPI reports. It will help you to understand what improvement you have to bring about in your company for sustained growth. 

Save Cost Through Labour Force Reduction 

Material procurement can help you to reduce your employee’s headcount without affecting your business operations. Reducing employee headcount will reduce your overheads significantly. 

A Couple of Risks Associated with Procurement Outsourcing 

There are also a few risks related to outsourcing that includes the following: 

  1. Procurement companies may not be experts in your specific business domain.
  2. You have to hand over some of your process controls to them.

Once you do a cost-benefit analysis, you will be in a better position to decide whether your business should go for procurement outsourcing to witness explosive growth. 

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