In the article below, the author takes a look at outsourcing, particularly related to procurement, outline: What is outsourced procurement? How does it work? Should your organization outsource its procurement?
Full text of the article is available in the link at the bottom of the article. So read for yourself and let us know what you think!
Procurement Outsourcing
By: Michael Lamoureux, PhD of Sourcing Innovation
It is a well known fact that businesses that outsource (well) grow faster, larger, and more profitably than those who do not. When done right, this is especially true for procurement as it can generate additional value through sourcing and compliance savings as compared to the savings opportunities from most outsourcing arrangements, which are generally limited to efficiency improvements and headcount reductions. In addition, it is a transformational type of outsourcing where a portion of the savings generated from an initial endeavor can be used to finance and expand the transformation.
One reason to outsource would be if the procurement of certain categories, such as indirect or non-critical materials, or the management of certain procurement processes, such as requisitioning and compliance tracking, were not core competencies since outsourcing provides an opportunity to increase efficiency, lower costs, and increase savings. Outsourcing in these situations is often much more economical than trying to build the competence internally.
Another reason to outsource is to keep organizational top performers happy. A first class sourcing professional wants to focus on strategic core purchases where she can have the greatest impact, not tactical indirect categories where savings opportunities are limited and impact minimal. By transferring manual and tactical tasks and low-impact indirect categories and class-C commodities, organizational top performers have more time to focus on what they do best and what benefits the organization the most. On the flipside, what once were low-volume non-strategic indirect categories are now high-volume strategic niche categories in the hands of a PSP who can aggregate volume and, more importantly, expertise across clients to the point where niche professionals focused on that category can be hired and kept happy by the sheer volume of opportunities.
A final reason to outsource would be if procurement is an area that, if managed properly, could drive significant value to the business but it is not an area that the organization plans on investing significantly in or increasing focus on internally. In this case, an organization could consider full spend management outsourcing, but it is not something the authors would normally recommend unless the organization was in an industry where all goods and services procured on a regular basis were non-strategic indirect or commodities. A hotel chain would be one example of a firm where full spend management outsourcing might make sense as the vast majority of goods and services procured on a regular basis are commodities.
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