Souvik Dey (FT153079)

Outsourcing of Procurement activities: Advantages

Procurement has been long standing part of any business. Companies use their own in-house resources to build on their procurement activities. Even, large corporations such as Wal-Mart, Amazon, and Schlumberger have made their sourcing policy as one the key competitive advantage over the rivals. They are spending enormously to make their sourcing policy differentiate ones by imbibing latest technological advancement that can enable them to curb their ballooning expenditures, maximize profit pie & reduce time consumption. However, it is also a fact that procurement process in these large organisations except few ones has been a cumbersome activity that results in a labour- time intensive complex process & fails to achieve the ultimate goal of the profit maximizing.

In order to counter the inefficiency of the procurement activity, a new trend has been in focus for quite some time. Companies now are resorting to outsource their sourcing job to the specialist agencies to cut down the administrative and operational expenses and make it a time efficient process.

A third party procurement company can leverage their economies of scale and trained procurement specialists to cut down the cost, obtain good discounts from the suppliers, utilize their vast number of suppliers portfolio, streamline the process, and bring more efficiency in the whole process for their customers. Customers, on the other hand, can give more emphasis to strengthen the core competencies of their business. Even not only, large corporations, small parties who have experienced spurt of growth in recent times, also resort to procurement outsourcing to reap the benefit of external matter expertise & structures. According to the statistics, companies in the range of $1bn-$5bn revenue gain most by outsourcing procurement as they are unable to make much headway in this area due to scare of resource, on the contrary Procurement agencies bundle the requirement of their customers and bring favourable return to those businesses.

A thorough analysis is required to ascertain the capabilities of the procurement agency , need to check their service offerings like procurement of operational & maintenance supplies or strategic sourcing or all purchasing activities and evaluate their value proposition in terms of potential savings and others benefits before sign up the contract with them. Outsourcing can be started off with activities related to the non-critical indirect material purchasing. Once, it goes well, then further outsourcing activity can be taken up. However, a contingency plan needs to put in place until the transition phase from in house to outsourcing procurement gets over. A detailed transition plan also to be made which safeguard the sufficient inventory level and raw material availability to cater the demands of the customers before handing over the operation to the external agency.

IT infrastructure needs to be ramp up to ensure smooth flowing of information between the management teams of the organisation and the outsourcing agency, They should go for such a supply chain network that facilitate collaboration and communication. This will provide the companys strong grip over the global supply chain network through integrated messaging, software applications and analytics across the stake holders of the supply chain network.

Outsourcing procurement activity can be an effective process which shorter the cycle time that leads to lower the inventory level which in turn increases the working capital of business which can further utilised for other transactional activities.

Reference: Digital Supply Chain Magazine, November,2014 edition.

Website: www.supplychaindigital.com