For fast-growing companies focused on adapting to changing landscapes, business process outsourcing (BPO) is becoming increasingly common. Instead of hiring in-house teams, companies are outsourcing critical business functions like IT, human resources, marketing and customer support.
The Rise of Strategic Procurement
The pandemic placed procurement on a higher level within business operations. By the end of 2028, the business process outsourcing market will have grown by 8.5 percent. If procurement isn’t already on your BPO radar, it will likely be soon. In this post, we’ll offer a refresher on procurement outsourcing, the benefits, and how to identify if it’s the right move for your company.
Procurement Outsourcing Defined
Procurement outsourcing involves shifting all or some procurement activities to a procurement service provider. This outsourcing process often involves procurement functions that are considered non-core but can include more strategic functions like supplier relationship management, RFP/bid management, spend management, and contract negotiation.
Why Outsource
There are pros and cons to business process outsourcing. Identifying ‘why’ you’re pursuing procurement outsourcing will help you better assess whether or not the benefits outweigh the costs. Select the right metrics.
- We need to reduce headcount.
- We need to curtail spending.
- We need to supplement existing procurement expertise.
- We need to do a better job leveraging volumes.
- Outside expertise can bring additional line of sight
Consider building supplier scorecards, in which your team decides upon two to three key criteria such as; low unit prices, supply chain resilience, and quality of product. By identifying these key results, you’ll be able to prioritize the value that procurement outsourcing will bring to your company.
6 benefits of procurement outsourcing
In case we haven’t already made the case for procurement outsourcing, here are 6 benefits to consider:
- Leveraged knowledge of procurement experts. Some areas of procurement, like direct procurement and strategic sourcing (think SaaS buying), are highly specialized and require ongoing education, training, certifications, and experience to maintain a competitive advantage. If you don’t have the resources to upkeep an investment in procurement education, your purchasing function will eventually suffer. In this case, outsourcing those procurement activities may be an ideal solution.
- Budget adherence and streamlined reporting. Procurement teams manage hundreds or thousands of suppliers and agreements, and millions in purchases. Adding results tracking and reporting to this process can be unsustainable and hard to scale. However, a results-driven approach from an outsourced team gives procurement what it needs for continuous improvement.
- Volume leveraging and cost savings. When analyzing your company’s category management and purchasing, you’ll likely find many different suppliers and agreements for the same products and solutions. Your company is missing out on volume discounts that could provide substantial cost reduction. By outsourcing procurement to a third party, you can rely on them to make organized, high-volume purchases to leverage volume and maximize savings.
- Simplified supplier and spend management. Outsourced procurement teams have access to industry-leading software that streamlines the purchasing process. Procurement outsourcing will even utilize spend management software, which can further reduce organizational costs.
- Cost savings through labor force reduction. Procurement outsourcing is a way to reduce headcount without heavily impacting business operations. When outsourcing procurement, you’ll likely be able to eliminate indirect procurement positions. Though you risk losing a level of in-house expertise, decreasing your headcount is a quick cost reduction that can easily be multiplied with the savings brought on by outsourced procurement.
- Cost savings through very focused acquisition of data analytics and expertise. Through BPO an entity has the ability to pick and choose where and how to engage an outside entity to apply the right amount of help such as tying Software Asset Management to IT contract negotiations for a very specified IT vendor. IBM for example, is very complex from usage/compliance with sub-capacity, to how much products should cost.
Is procurement outsourcing the right choice for your business?
So how do you know if procurement outsourcing is the right choice for your business? Procurement outsourcing is the right choice for your business if:
- You’re looking to leverage the expertise of an outside team to help make purchasing decisions
- You’re looking to reduce your internal procurement headcount
- You need additional resources for supplier and spend management
- You need help staying on budget, establishing and meeting KPIs, and reporting on your progress
- You’re interested in leveraging volume and group-spend discounts on business purchases
Outsourcing still requires spending, and teams will want to get good data before they sign a final contract. In addition, staff members should be on board with the rationale and objectives of the outsourcing project. Procurement teams must figure out what and how much to outsource.
If you’re interested in outsourcing some or all of your business’s procurement activities, Software Contract Solutions is here for you—no matter how big or small the challenge. We can help, contact us today.