Your Business Guide to Outsourced Procurement
A comprehensive guide to outsourced procurement and the benefits of working with a group purchasing organization to save money, time, and effort.
Introduction
Everyone outsources.
Outsourcing is something we all do in our daily lives, often without even realizing it. From hiring a plumber to fix a leaky faucet to ordering takeout instead of cooking dinner, people commonly outsource tasks to save time, reduce stress, or simply because it’s convenient.
Yes, outsourcing can cost money, but sometimes it can also save money.
For example, you may aspire to fix your broken-down car, but by the time you’ve bought the tools, parts, and maybe even invested in a training course, you’ve spent a lot more than you would if you simply took it to the mechanic.
In this guide to outsourced procurement, we explore why businesses outsource, shed light on some fascinating statistics, delve into the main functions that are commonly outsourced, and provide practical tips for successful outsourcing.
We’ll also reveal the benefits of outsourcing procurement to a group purchasing organization (GPO).
In This Guide:
Why Organizations Outsource
From tiny start-ups to the biggest organizations, there are plenty of reasons why companies engage in BPO (Business Process Outsourcing):
Save serious cash
Cost reduction is a big reason why businesses outsource. By handing off non-core tasks, companies can dodge the expenses of hiring and training a full in-house team, as well as investing in fancy equipment and technology.
Tap into super skills
Outsourcing lets businesses tap into a worldwide talent pool and get access to specialized skills that might not be found in-house. This means they can benefit from the expertise of external pros while focusing on what they do best.
Get things done faster
Outsourcing helps businesses streamline their operations and use their resources more efficiently. By bringing in experts for certain tasks, companies can crank up their productivity and get things done more quickly, leading to better overall performance.
Scale and flex
Outsourcing gives businesses the flexibility to scale up or down at the drop of a hat. This is super handy in industries where workloads can change in a snap, like customer support or software development. Being able to adapt fast keeps businesses agile and ready for whatever the market throws their way.
The Outsourcing Landscape
Let’s take a closer look at some eye-opening statistics about outsourcing:
According to a report by Grand View Research, the global outsourcing market size is projected to reach $397.6 billion by 2027, growing at a CAGR of 8.8%.
A Clutch study found that 37% of small businesses outsource at least one business process, with smaller businesses most likely to outsource accounting (37%), IT (37%) and digital marketing (34%).
The primary motivation for outsourcing is to increase efficiency (24%) and to gain access to expert skills (18%). Clutch also found that businesses with 50 or fewer employees (29%) are less likely to outsource compared to businesses with more than 50 employees (66%).
Outsourcing is a very broad term. It doesn’t matter whether you spend millions with a nationally-recognized marketing firm or hire a cheap freelancer from Fiverr – it’s still outsourcing.
You might outsource to someone local (onshore), in a neighboring country (nearshore), or on the other side of the planet (offshoring).
Certain countries around the world such as India, the Philippines, and Poland have gained a reputation as great places to outsource due to their large talent pools, low costs, and English language proficiency.
Commonly Outsourced Functions
Here are some of the main functions that businesses frequently outsource:
IT Services
Customer Support
Human Resources
Accounting & Finance
Digital Marketing
Tips for Successful
Outsourcing
Consider these practical tips to make the most of outsourcing:
Know your processes
Understand the process you want to outsource before handing it over. Failing to do so will make it very difficult to gauge the service providers’ performance.
Choose the right partner
Take the time to research and select a reliable outsourcing provider that has a proven track record, relevant experience, and a good cultural fit with your organization. Procurement professionals like yourself are great at this!
Clearly define your objectives
Communicate your goals and expectations to your outsourcing partner. This ensures that both parties are aligned and working towards the same objectives.
Establish effective communication channels
Maintain open and transparent communication with your outsourcing partner. Schedule regular meetings, use collaboration tools, and establish clear reporting mechanisms to facilitate smooth collaboration.
Protect intellectual property
Ensure that appropriate confidentiality and non-disclosure agreements are in place to protect your company’s intellectual property rights and sensitive information.
Prioritize cybersecurity
Make sure that your outsourcing partner has robust cybersecurity measures in place to minimize the chance of a supply chain or back-door attack on your organization. Verify that they follow industry best practices for data protection, have proper security protocols, and regularly update their systems to defend against cyber threats.
Monitor performance & provide feedback
Regularly evaluate the performance of your outsourcing partner and provide constructive feedback. This allows for continuous improvement and helps maintain a strong working relationship.
Outsourcing Misconceptions
Outsourcing doesn’t have to be an all-or-nothing deal, despite what some folks might think. This misconception stems from the idea that outsourcing means giving up complete control and ditching all responsibilities; but that’s not the case at all.
Businesses have the freedom to handpick which tasks or functions to outsource based on their unique needs and goals.
This means you can keep a tight grip on critical aspects of your operations while still enjoying the perks of specialized expertise and cost savings that outsourcing brings. By selectively outsourcing specific tasks, you can strike a balance between tapping into external resources and maintaining your internal capabilities.
Here’s another myth to bust:
Outsourcing isn’t just for the big kids.
Sure, larger corporations often go all-in on outsourcing, but that doesn’t mean small and medium-sized enterprises can’t get in on the action. In fact, SMEs can reap some serious benefits from outsourcing. It gives them access to specialized skills, cuts costs, and boosts operational efficiency.
Think of it as a way for the little guys to level the playing field and compete toe-to-toe with the big players – a concept we’re very familiar with here at Una.
By outsourcing non-core functions or tasks, SMEs can strategically allocate their limited resources, focus on what they do best, adapt to market changes like lightning, and come out swinging in their industries.
Outsourcing is all about flexibility, control, and leveling the playing field. It’s a smart move that businesses of all sizes can make to boost their game and stay ahead of the pack.
Outsourced Procurement
Why do organizations choose to outsource some or all of their procurement functions?
First of all, outsourcing procurement can actually save businesses money and free up their valuable time. When companies outsource their purchasing tasks, they often benefit from process improvements and efficiencies offered by specialized procurement BPO providers.
This can lead to operating cost reductions of around 15 to 20 percent.
Another perk of outsourcing procurement is that it can help companies grow faster and become more profitable. How? Well, providers (including Una) often have category experts with extensive sourcing experience. These experts can tap into resources and knowledge that may go beyond what your own organization has access to.
By focusing specifically on these categories, they can manage more of your spending and find even greater cost savings for you.
Before you jump on the outsourcing bandwagon, it’s important to assess the current state of your purchasing. Understand the internal costs driving your business, look at your spending by category, and examine volume and the frequency of these transactions to help you figure out if you can get better prices or purchase better products for similar prices through outsourcing.
Still puzzled about where to begin? Let’s take a look at a typical procurement cycle…
Outsource by task
It can be helpful to think about all the tasks that your team handles during a typical sourcing cycle. There are plenty of things that can be outsourced to make your life easier:
Determine Business Needs
Market Analysis
Supplier Selection & Evaluation
RFP Management
Contract Negotiation & Management
Purchase Order Processing
Supplier Relationship Management
Strategic Sourcing
Spend Analysis
Compliance
& Risk Management
Inventory Management
Auditing
Outsource by category
Another option is to outsource certain procurement categories. For example, you may choose to retain direct categories in-house and outsource the management of indirect procurement categories.
You may decide to offload the burden of tail-spend management to a BPO provider. You might feel the need to outsource categories where you lack skills or knowledge, such as social procurement or IT procurement.
Outsource by project
Here’s a different way of thinking about outsourcing – by project. Say, for example, that your CEO demands procurement slashes its environmental footprint by 20% in 12 months. You may choose to hand this project over to a service provider with a track record of success in this area.
Similarly, you might outsource a project to increase procurement speed-to-savings to an expert in Agile procurement. Typically, once you’ve engaged a third-party provider they will send some resources to your organization who will work alongside your team.
Outsourcing to a Group Purchasing Organization
Imagine having a partner who can check off multiple boxes at once. That’s where group purchasing organizations (GPOs) come in. GPOs are all about saving their members money, time, and effort by offering a variety of services that make procurement a breeze.
When you join a GPO, you can skip the whole lengthy supplier selection process because they’ve already established relationships with suppliers. You can say goodbye to the usual RFx channels and contract negotiations because GPOs have portfolios filled with pre-negotiated contracts that are good to go. This means you can speed up the process and start saving right away.
At Una, we pride ourselves on our ability to offer our members several outsourcing services beyond our core mission of saving time, effort, and money. We help our members standardize and streamline purchasing needs, compare costs and use data to complete spend analyses, expertly manage categories, identify blind areas of spend, and increase the speed at which they save money.
When is the right time to outsource procurement tasks to a GPO? Again, it depends on your circumstances.
Here are some of the reasons sourcing professionals get in touch with the Una team:
You want to cut the cost of tail spend
We assist our members by carefully analyzing their tail spend to identify categories that can benefit from immediate cost savings enabled by volume purchasing.
You want to increase buying power
You run a lean procurement function
You can't hire more team members
You don't want to squeeze suppliers
Partnering with a GPO to unlock an average cost saving of 22% across categories is a better option.
Cost of outsourcing to a GPO
Una membership and the perks that come with it is completely free of charge.
But if you’re considering outsourcing procurement to another provider, it’s essential to have a clear understanding of the costs involved and whether the investment is worth it for your organization. Conduct a comprehensive cost analysis to compare the expenses associated with outsourcing procurement versus keeping the process in-house.
Consider factors such as labor costs, infrastructure, technology investments, training, and overhead expenses. This analysis will help you determine the potential cost savings and return on investment (ROI) that outsourcing can bring.
Understand the fee structure of your outsourcing partner. Evaluate whether the fees align with the value and expertise they bring to the table. Consider factors such as the scope of work, service level agreements, and any additional costs that may arise during the course of the partnership.
Take into account the one-time costs associated with transitioning the procurement process to an outsourcing provider. This may include costs related to knowledge transfer, system integration, and any required training or reorganization within your organization. While there may be upfront costs, consider the long-term benefits and potential cost savings that outsourcing can provide.
Conclusion
It’s likely you’ve recently been told to “do more with less.” You’re expected to continue adding value to the business without incurring additional expenses. You’re wanting to implement strategies you know will make an impact but don’t have the capacity nor the resources to do it all on your own.
Outsourcing certain business functions or procurement tasks is a proven way for organizations to get ahead when they’re looking to save money, increase the speed at which they operate, and scale while remaining flexible.
Whether you spend millions with a nationally-known consulting firm to optimize your sourcing strategy, or partner with a GPO like Una for free, you’re still poised to reap the benefits of outsourcing procurement to a third-party.
And truly, Una membership is free. Outsourcing procurement tasks to Una will cost you nothing. Zip. Zilch. We don’t charge our members a cent, and there are no lock-in contracts or other hidden surprises.
If you’re looking for a zero-cost way to outsource procurement tasks to save money, time, and effort, get in touch with Una today.
