Procurement Outsourcing (PO) refers to the outsourcing of procurement functions to an external service provider to reduce overall costs and free their resources to work on the core functions of the organization. The organizations can outsource all or some of the procurement functions. The spend of an organization can be divided into 2 parts –Direct spend(core) and Indirect (non-core) spend. The organizations can start PO from indirect procurement spend.
Why Procurement Outsourcing?
Indirect procurement spend is difficult for most of the procurement organizations. The administrative cost to manage indirect spend is huge. As a result, PO can offer great amount of savings and the organizations can utilize the resources in core business areas. An outsourcing partner can bring expertise in terms of category management, sourcing, contract management, Supplier Relationship Management, etc.
Provide Source to pay (S2P) services to organizations.
The services include
- Master Data Management
- Strategic Sourcing
- Demand Management
- Issuing of RFx(RFP,RFQ,RFI)
- Obtaining Quotes and Bid Analysis
- Order Management
- Reverse Auctions
- Contract Management
- Category Management
- Spend Data Analysis
- Supplier Relationship Management
- Demand Management
- Routine procurement
- Vendor Performance Analysis
- Invoice processing
- Vendor Development
- KPIs and Reporting
PO services can be made available on following models
- Shared Services
In Dedicated or One –to- One model, the team works for one client only. The resources are always available to the organization and have fair understanding of organization’s business domain.
In Shared services or one – to – many model, teams are shared between various organizations for full use of resources deployed.
In hybrid model, combination of the two models is adopted. It can be used for services such as invoice processing, contract management, etc.
In all the above models, deployed resources are trained as per the Procurement Policy/ guidelines of the client. Resources are also trained IT systems, as implemented by the client, to carry out the transactions in the system and generate periodic reports.
Benefits of PO
- Process improvement and Cost reduction from head count, training needs, etc.
- KPIs oriented procurement handled by skilled procurement experts
- Market leverage allowing for better discounts.
- Transaction cost per purchase are lowered by economies of scale.
- Marketing knowledge of which suppliers are best for each product to be purchased.
- Improved communication between purchasing experts and the company staff.
- Better management information and spend analysis reports for effective decision making.
- Negotiation by an expert in the field is often more effective and profitable.