5 Benefits of Outsourcing a Procurement Function
By Mackenzie Oakley | January 13, 2022
For many companies, purchasing decisions are handled in-house and the job often rests on the shoulders of one person – the procurement manager. This purchasing professional has a tremendous responsibility. They have a heavy hand in determining the length of the expense list for your business each month.
Does your business need new computers or printers? How about network equipment? Maybe it’s new desks, company cars, or simply office supplies. The list could go on and on.
Once they’ve determined what products they need and what their budget allows, it’s up to that individual to negotiate with suppliers or manufacturers. Of course, they can only speak to one supplier or manufacturer at a time, so the process is most likely to be time-consuming.
And if they’re only buying a small quantity of one particular item, chances are they’re probably paying a premium for those products.
Benefits of outsourcing a procurement function
It is entirely acceptable to manage purchasing decisions internally, especially when it comes to your direct spend. But when handling indirect spend or tail spend categories, procurement teams have the option to outsource some of their strategic and tactical procurement functions.
For many businesses, it may actually end up being cheaper and a better use of time to outsource procurement. What’s more, companies that outsource procurement tend to grow faster and become more profitable compared to companies who keep everything in-house.
Here are 5 key benefits of outsourcing a procurement function.
Companies that outsource certain purchasing functions can typically expect to see operating costs reduced by 15 to 20 percent, thanks to the process improvements and efficiencies that purchasing companies can offer.
Procurement outsourcing providers have category experts with sourcing experience that may reach beyond what your own organization has access to. Granting dedicated focus to these categories results in more spend under management and greater cost savings.
To determine whether or not you’d benefit from outsourcing, first look at what’s driving the internal costs of your business. Many companies decide to outsource procurement without assessing the current state of their purchasing. If you aren’t familiar with your current purchasing costs, there’s no way to know whether you’ll actually benefit from outsourcing.
Get an idea of spending by category. Within each category, note the types of spend, such as catalog and on-site. Then, look at the volume of these transactions and how often you’re purchasing each item. You’ll need this information to determine whether you might be able to get a better price on your purchases or purchase a better product for a similar price.
Improved focus and efficiencies
By outsourcing certain procurement activities, you’re able to shift the focus of your procurement department. When a third party is handling the supplier search and contract negotiations, the members of your team have a chance to redefine their roles to allow them to focus on other sourcing initiatives or core competencies.
A third-part, such as a group purchasing organization, already has established vendor relationships which means their process can be applied quickly to multiple categories.
Access to procurement resources
Partnering with a third party is essentially opening up the number of procurement resources at your disposal. Outsourcing means you now have access to category experts who can offer advice and a wider supplier portfolio that can help accomplish your goals.
Objectives that are better aligned with the business
When selecting a procurement partner to help with sourcing activities, make sure the capabilities of the procurement company align with your company’s objectives. If you’re looking to reduce costs, the company should have a proven track record of helping similar companies achieve lower supply spend.
Similarly, if streamlined purchasing or better products are your goals, you’ll need to find out whether the procurement company has successfully attained these goals for other companies.
Establishing an agile procurement function
If the ongoing COVID-19 pandemic taught us anything, it was that procurement’s ability to adapt to change and thwart supply chain risks is more important than ever. By partnering with third party for certain procurement functions, organizations have the resources available to source from multiple vendors during supply shortages or access a variety of robust contracts when experiencing supply chain disruption.
Outsourcing procurement opens up more ways for sourcing teams to adapt to change quickly while ensuring business continuity.
Una is a group purchasing organization dedicated to helping businesses of all shapes and sizes save money, time and effort. Contact us to learn how partnering with a GPO to handle certain procurement functions can take your sourcing strategy to the next level.