What is procurement outsourcing all about?
Sep 17, 2024 - The rise of business process outsourcing (BPO) has transformed the structure of many industries in the last two decades. Companies now routinely hand over activities, processes, or whole operations to third parties. The BPO industry, in turn, has evolved to offer an ever-broader range of services, including many strategically important ones.
In procurement, the outsourcing process has followed the same path. Outsourcing transactional procurement, like order processing or the management of invoices, is now relatively common. Only in the past ten years, however, has the outsourcing of strategic procurement activities, like supplier selection, contract negotiation or whole operations, become more widespread.
The most important factors influencing the decision about implementing outsourcing in companies are: reducing the operating expenses of the company and access to scale, expertise and capabilities they don’t have in-house.
At present it is considered as an element shaping the operations strategy of the company that aims to achieve competitive advantage. In order to remain competitive, companies try to focus on their fundamental activity, strategic competences that distinguish them on the market and, as a result, allow them to achieve competitive advantage. Thus, the conception of the activity called outsourcing is related to looking for external partners who are able to take over and manage effectively the rest of processes that are essential for the company to function successfully.
Procurement outsourcing that drives high performance
In the quest for greater business value, cost savings and high performance through business process outsourcing, senior executives from nearly every industry are turning their attention to their procurement function.
Why? Because direct procurement is often a company's biggest cost item, sometimes accounting for as much as 80% of total costs. So even small percentage reductions in that cost base can have a big impact on profitability.
At the same time, because procurement connects so many functions of an organization—generating a unique, enterprise-wide perspective—procurement has a strategic power that is often not sufficiently leveraged by companies to generate value and drive high performance.
Outsourcing: The choice of procurement masters
Chief procurement officers (CPOs) face a host of challenges today: acquiring the necessary procurement skills, reducing risks, improving compliance, optimizing processes, lowering transactional costs, and increasing control over spend at scale.
The question all organizations must ask themselves is if they have or can acquire the internal organization and capabilities to maximize the value-generating potential of their procurement function. As one EPG procurement BPO client puts it, “You can do it yourself...Or, you can turn to an organization that has already made the investment in time, effort, money, and experience in developing advanced procurement capabilities.”
We provide the right mix of services, expertise, specialized knowledge and ongoing commitment to bridge the gap between reactive procurement and proactive procurement, ensuring your procurement organization reaches its full, unlimited potential.
"You can do it yourself...Or, you can turn to an organization that has already made the investment in time, effort, money, and experience in developing advanced procurement capabilities”
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