Procurement Outsourcing: Understanding the Concept

Regarding business management, the supply chain aspect of a business is sometimes handled in-house by the business managers who either establish a procurement and supply chain department of the business, usually headed by a procurement manager, or incorporate it into the general business operation. Here, the procurement manager is solely responsible for the overall procurement within the company, ranging from sourcing to procurement, shipping, and final delivery to the business premises. However, this can take longer than necessary and will even cost more because a procurement manager needs the technology, network, and facilities to help make the procurement and shipping process easy and cheaper. In most cases, the business spends more than it should have or even runs into loss, and this is where procurement outsourcing comes in.

What is Procurement Outsourcing?

  Outsourcing generally is the process of relinquishing the provision of certain services to an external vendor or third-party supplier instead of incorporating such services into the regular business operation. It is utilised when a business may need more skills, capacity, or experts to carry out such services and saves the company the stress of venturing into a terrain that they are not familiar with. 

On the other hand, procurement outsourcing is the transfer of specified key procurement activities to a third-party procurement expert. Businesses, in most cases, use the services of these procurement companies to save costs, enjoy the benefit of using top-notch procurement facilities without having to invest in them, enjoy services that are available to these procurement companies that may not be available to individual buyers like discounts and shipping alternatives and focus better in running their business. In other words, outsourcing gives companies access to expertise, capabilities, and scale they may not have in-house.

Depending on the company's wants, procurement outsourcing could be strategic or transactional. Strategic procurement includes Source-to-contract (S2C) activities from market analysis and category strategy. In contrast, transactional procurement, on the other hand, includes routine requisition-to-pay activities (R2P), such as purchase order creation and management, invoice payment, and vendor management. 

Benefits of Outsourcing in Procurement

It is okay to handle procurement activities at the house, especially with slight or minor procurement; however, outsourcing procurement to experts has it’s benefits, which are:  

  • Cost reduction

When it comes to cost reduction as a benefit of outsourcing in procurement, it goes beyond the reduction of operation costs to include the reduction of labor costs. Aside from operations cost, another cost-intensive aspect of a business is labor. Labor costs include salaries, allowances, compensations, and HMO. Outsourcing certain services to third-party experts will help the company save costs. According to available data, companies that outsource certain purchasing functions can typically expect operating costs reduced by 15 to 20%

Equipment costs can also be intensive when the company shoulders them. However, outsourcing will give businesses access to state-of-the-art technologies these third-party companies provide, thereby saving costs and maximising profit.

To determine if outsourcing will benefit your company, it is essential to assess the state of your business and the volume of your procurement to decide if your business has what it takes to seek the services of third-party experts. 

  • Improved business management and operational efficiency

By outsourcing certain functions and services to external vendors, the focus can then be shifted to other important aspects of the business, thereby enhancing efficiency and productivity. As a business owner, the focus should be the achievement of the company's goals and vision, and focusing on things like procurement can take a massive chunk of your time, thereby taking your focus away from the goal. Outsourcing non-core areas of the company, like procurement or IT, will give you the time to concentrate more on meaningful work that will significantly impact your business operations.

Also, using the services of an independent contractor gives the business access to experience and expertise that will improve business functions and efficiency while introducing new initiatives. 

A third-party procurement expert already has established vendor relationships, so their process can be applied quickly to multiple categories, saving the company money and time.

  • Access to resources and facilities

Partnering with a third party opens a business up to high-end procurement resources and facilities they would have access to. It also gives them access to discounts and better contract negotiation and opens them up to a more comprehensive network of suppliers in partnership with the procurement expert. Outsourcing gives you access to category experts who can offer advice and a more comprehensive supplier portfolio that can help accomplish your goals.

  • Internal Team Development

Bringing in outside experts is an excellent opportunity for the core staff to learn and pick up new skills and ideas by working alongside the contracted experts, especially when the team is still developing.

  • Competitive edge

Outsourcing can give small businesses a competitive edge in the market. By partnering with external experts, small businesses can access procurement resources globally, giving them an edge over other companies in their category. With this, they will be more experienced and can even offer products and services to clients at a cheaper rate. 

Flexible and agile procurement processes

If we have learned anything in recent years, the world we live in and can change at any time, and the ability to remain afloat even amid these changes makes a business outstanding. By partnering with third parties for certain procurement functions, organisations have the resources to source from different vendors. 

Outsourcing may not be perfect for every situation, but there are many advantages that it can bring to a company. It has been discovered that companies that outsource certain purchasing functions see operating costs reduced by 15-20%. 

With her wealth of experience and expertise, SARA PROCUREMENT SERVICES LIMITED is available to work with you for a smooth procurement experience from start to finish.

Visit our physical office space at 3 Fatai Irawo Street, Ajao Estate, Airport Road, Lagos, Nigeria, or any of our warehouse touch point locations worldwide to learn more about us and utilise our services. 

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