Procurement Outsourcing for the Win and 5 Big Benefits
3rd September 2018
Whether your company is listed in the top 100 or not, there are steps your company can take to improve your financial outlook, including the management of indirect spend. After all, indirect procurement is one of the more controllable figures within a company’s budget and changes you make today can impact your ROI tomorrow.
Procurement Outsourcing for the Win
Outsourcing a company’s indirect procurement is becoming more and more popular, whether that is the function as a whole, working alongside existing procurement personnel or simply outsourcing one or two categories.
Procurement outsourcing is the transfer of specified procurement activities relating to sourcing and supplier management to a third party. Businesses and charities will sometimes do this to reduce costs and/ or to add specialist skill sets to their procurement department. Typically the most common outsourced activities are indirect goods and services that are commonly referred to as indirect procurement (Energy, IT & Telecoms, Insurance, Business Supplies, Courier & Logistics for example).
In the Beginning – Conduct a Spend Analysis
Perhaps the most important part of financial planning, analysis and restructuring is having a confident grasp on your company’s current spending. Understanding where a business’ funds are allocated can help pinpoint expenses that greatly impact cash flow and enable change and facilitate improvement.
The process of conducting an indirect spend analysis, by a professional outsourced procurement company, will ensure this analysis is impartial and none emotive (free from existing relationships, loyalties and will allow the cutting through the clutter to see exactly what needs to be done) . It includes segmenting overall company spend by departments, categories and process groups. Once that data is collected, the comparison can begin. The goal is to identify and benchmark, spend against market norms.
Procurement Outsourcing is a Collaboration
An important element of outsourced procurement is the understanding that it’s a collaboration between the third party and the organisation; it’s a joint working partnership rather than “passing the work on for someone else to manage”. Third party management is a result of the process but it takes collaboration to get there. You need the relationships, strategies and understanding in place to support that collaboration.
True procurement collaboration will lead to the procurement function becoming more sophisticated and specialised. The business or charity will retain control but will also gain a team of experts who can be instructed to be extremely results driven and deliver very specific KPIs. In addition, the company will gain a constant stream of new ideas and innovation from a team that’s well connected within the supply chain and much more aware of the latest procurement trends, enhanced processes and the latest technology, products and services etc. which all present huge opportunity for cost reduction, waste reduction and rationalisation within procurement and the supply chain.
Of course relationships and collaboration are a two way affiliation. Agreeing on expectations right from the start is essential and it’s only through knowing a company’s goals can a third party successfully bring the right suppliers with the right products, services, tools, technology, skills and mind-set to the table. Both parties need to think of this as a single team, but with different roles.
The Main Benefits of Outsourced Procurement
Many companies regard outsourcing their procurement processes as comparable to outsourcing their accounting, legal or IT support functions to in effect complement the existing expertise they already possess. But there is a whole host of other benefits to outsourced procurement, including;
Speed and EfficiencyBeing able to execute quickly both internally and externally. Collaboration among departments, in any big, complex organisation, can be tricky but an outsourced procurement specialist can be the “glue” and the nucleus. By giving a really big push to the centralisation of a procurement mandate you’ll be able to take advantage of true buying power to drive down the costs of goods and services as well as enhancing efficiency.
Business OpportunitiesSomething to consider in your outsourcing decisions, is whether it can be used to leverage or facilitate other business opportunities. For example, bringing in third parties can instantly give you access to their successes and innovation from their supply chain partners. If you have an outsourced procurement partner, you have access to their knowledge as well as your own.
ConsolidationProcurement often presents a fragmented landscape characterised by duplication of roles, unnecessary roles and overheads and failure to maximise purchasing power. Procurement consolidation can relieve supply chain management issues and resolve incompatible system issues, problematic networks, suppliers and distribution channels, legacy infrastructure problems and labour intensive processes. Outsourced specialists see these problems with a none emotive eye and so successful resolution is more easily achieved.
Maverick SpendingProcuright conducted a recent review of a company’s indirect procurement and found a variation of 119% between the highest and lowest prices paid for the same specification of paper within the business and up to 182% in prices paid for an essential janitorial product. This a consistent anomaly across almost 100 products in the GNFR (Goods Not For Resale) category and clearly offers a huge opportunity for the business when handled correctly.
Cost ReductionThis is a huge area and opportunity for any UK business or charity but is far too complex to go into any great detail here. Essentially, the previous 4 points all offer vast prospects for cost reduction and because different processes and constantly evolving technology, products and services etc. are doing just that, evolving, developing and advancing, it means cost reduction has always been and will always be a KPI within procurement (and don’t let anybody tell you that it’s not).
A Professional Indirect Spend Management Company
Managing indirect spend is so important to today’s businesses that many choose to involve a team of experts for decision-making, auditing and implementation. Procurement outsourcing constitutes a growing trend of corporate procurement strategies. In fact, research has suggested that major companies will likely expand the scope of procurement outsourcing in the coming years.
With margins tight, you must ensure that your disparate departments, offices, depots or hubs work together as a seamless network. Systems must be migrated, protocols established, suppliers streamlined, contracts re-negotiated and streamlined, IT and telecoms incompatibilities addressed. And all of this must be done quickly and seamlessly. This is where Procuright can help.
Procuright provide outsourced procurement management to yield your expected benefits and our non-emotional processes deliver real savings and will stand up to any level of scrutiny and help you deliver the business case.
We specialise in indirect spend management, cost reduction and procurement transformation projects. Our consulting program, featuring our team of strategic thinkers and motivated hands on innovators, drives our clients’ procurement to peak performance. If you’re aiming for long-term sustainable savings and achieving a more effective indirect spend portfolio then please get in touch with Procuright .
"Perhaps the most important part of financial planning, analysis and restructuring is having a confident grasp on your company’s current spending. Understanding where a business’ funds are allocated can help pinpoint expenses that greatly impact cash flow and enable change and facilitate improvement. The process of conducting an indirect spend analysis, by a professional outsourced procurement company, will ensure this analysis is impartial and none emotive (free from existing relationships, loyalties and will allow the cutting through the clutter to see exactly what needs to be done)......................."