Creating a Role Versus Outsourcing, in 2020, for Better Procurement in Business
As specialists in the area of procurement, I suppose we're pretty biased when we say that purchasing, in the right way, is vital. By, "the right way", we're happy to use the Wikipedia definition of Procurement - which states:
"Procurement is the process of finding, agreeing terms and acquiring goods, services or works from an external source, often via a tendering or competitive bidding process. The process is used to ensure the buyer receives goods, services or works at the best possible price, when aspects such as quality, quantity, time, and location are compared." - Wikipedia
You're possibly thinking that "procurement" and all that it demands, is for large organisations (think NHS) spending millions of pounds on thousands of suppliers. You'd be right to think that of course but there inevitably comes a point within every business whereby they need to start thinking about their procurement strategy and the processes involved.
We're aware that many businesses create a procurement roll, on the back foot and because of a negative experience within the business. In fact, you may even be reading this because of a negative purchasing situation that's occurred within the business. Issues such as a lack of spend control or inefficient processes and supplier numbers/ problems are all common place.
You all agree then, that procuring your essential areas of spends, in the right way, is serious. But should you employ someone to manage the purchasing of products and services etc. or outsource?
We've compiled a basic purchasing strategy to compare creating a roll v outsourcing your essential business spending needs:
Selection (the most appropriate product or service for the purpose)
Enable standardisation as far as possible for equipment and consumables - it's true that employees know the business. But with the right guidelines from management (which they would need to do for employees too, in most circumstances), an external company can handle this as they do it daily for thousands of businesses in the UK and are able to consolidate suppliers to ensure efficiency for the business = Outsource.
Ensure the purchase of significant cost items is the best business case and analyse the whole of life costs - The winner here very much depends on the type of product or service you're buying for the business. Certain areas will undoubtedly be better off sourced by an employee, with industry knowledge and experience. But if it's something that's pretty standard across all businesses, regardless of the industry, an outsourced solution wins = Draw.
Ensure sufficient time is allowed for the appropriate procurement route - if a company is able to review your largest areas of expenditure in 3 weeks, whilst proposing an outcome that is solely to the benefit of your company, rather than for an individual supplier, then why wouldn't you engage with them? = Outsource
Result = OUTSOURCE
Procurement (products are ordered, handled and paid for in the most efficient manner)
Reduce the cost of ordering and low value orders by rationalising the supply chain, standardising product ranges and aggregating orders - This is only really successful when you outsource. You may have decent purchasing power on your own merit. But it's stronger still when you're buying with thousands of other businesses = Outsource.
Development of supplier relationships and potential "partnerships" to reduce costs and improve process - Outsourced companies should have excellent relationships with suppliers, across the supply chain. If they didn't, then they wouldn't have a business themselves. And because of the amount of business they put through the suppliers, they inevitably have access to the kind of pricing and supplier guarantees that can help you reduce costs and improve processes = Outsource.
Explore how poor supply practices can be avoided through appropriate spending - all employees should be tasked with this, whether they're in a procurement function or not. Outsourced companies can help to a certain extent with ensuring the right supplies are with the right suppliers = Draw.
Result = OUTSOURCE
Prices (the best possible price for the goods and services)
Use competition wherever appropriate - This method of reducing prices and "benchmarking" has the potential to alienate suppliers. Outsourced procurement companies put enough business through all suppliers for this not to affect service levels or alienate any part of the supply chain. Plus, many are able to compare goods, term and services to ensure the competition/ offer is on a like-for-like basis = Outsource.
Maximisation of early discount payments and Direct Debit - This can be set up by employees or an outsourced organisation. Good communication is key and DD payments bring many benefits = Draw.
Monitoring high levels of spend or frequent low value orders - Some employees may be able to undertake this, as long as the number of orders isn't too high. But any outsourced company worth their salt will be abreast with the latest technology and processes to ensure clients can keep on top of monitoring in the most efficient way possible = Outsource.
Result = OUTSOURCE
To get a firmer grip on spend, suppliers and sourcing, it's likely that chatting with an outsourced procurement company will help;
Consolidate spending and reduce supplier numbers
Manage supplier relationships
Ensure legal and regulatory compliance
Improve business efficiency
Whilst many companies engage with a procurement specialist due to rising costs, many other businesses seek the advice available due to inefficient and labour intensive processes.
An organisation may also be undergoing a merger, bringing in more complex supplier portfolios or increasing spend overnight. These types of events can force a business to rethink processes like procurement. The very foundations of the organisation could adjust dramatically, and existing resources may simply not be adequate enough to support it.
No two businesses are the same and each will feel the need for procurement at different stages. Whilst some believe it's a necessity once a company reaches X amount in turnover, others see it as being more vital once supplier numbers hit a certain number. And no supplier number can be the same for every business as they'll take a different level of processing based on the type of industry the company is in, as well as the supplier themselves.
It's time for the procurement community to help strip its perception as a function for the larger business. This way more businesses can realise its positive and constructive effects.
"We're aware that many businesses create a procurement roll, on the back foot and because of a negative experience within the business. In fact, you may even be reading this because of a negative purchasing situation that's occurred within the business. Issues such as a lack of spend control or inefficient processes and supplier numbers/ problems are all common place."