A Deep Dive into the Benefits of Outsourcing

Procurement
An effective procurement solution may be a hassle to arrive at. It could go two ways. Either, it could go
really well and reduce your workload dramatically or it could wind up turning procurement into more
work which is definitely not what you signed up for.

Hiring more employees, at the face of it, seems like a solution to overcome the hurdle, but along with new
employees comes a set of potential problems such as that of increasing costs and training. Having a larger
workforce doesn’t necessarily mean that procurement would be simplified.

And isn’t your company supposed to focusing on what is was really meant to do and change the world in
its own way? Wouldn’t you rather be focused on doing just that instead of involving yourself in the
procurement system of the company?

To avoid all the complexities and intricacies that are associated with in-house procurement and the ever-
increasing costs, there are options through outsourcing procurement that serve as an effective and
efficient solution where risks and costs are outweighed by the numerous benefits of outsourcing
procurement.

At first instance it may seem rather strange allowing some other company to manage your procurement
system. Of course you would want to stay in control as you know what your company wants and what is
good for your business. But outsourcing does not necessarily mean that you lose control. In fact, you stand
to gain a lot more than just more effective control.
Outsourcing can be a way of not only cost reduction in its simplest sense but also as a means to improve
existing systems and processes and ensure the business is functioning at its best. There are several
benefits of outsourcing procurement which can improve the efficiency of a business in ways you might
not have thought of.
Benefits of Outsourcing Procurement
“If you deprive yourself of outsourcing and your competitors do not, you're putting yourself out of
business.”
Lee Kuan Yew
Through outsourcing procurement, companies are generally able to concentrate on their essential
functions and capabilities while ensuring that their purchasing is being managed both profitably and
effectively. Companies are also able to leverage “first mover" advantage by concentrating on their core
purpose and business of operation than on purchasing, which can be outsourced. Take advantage of
outsourcing that is available these days, reap the benefits, and watch your company grow.
1. Cost reduction

Costs can be reduced drastically for training, office space as well as computerization. Outsourcing
eliminates such costs as there is both time and money that is saved through specialists in the field
and experts available that would not require training due to such expertise. Office space and head
count would also not prove to be a hassle as the workforce for purchasing would be outsourced
and not require physical space which would have otherwise increased costs.
2. Experts and skilled staff

Access is given to business for highly skilled procurement experts. This works especially well in
instances where demand or cost would not justify an internal resource. Outsourcing provides the
company with trained procurement specialists who also have extensive access to relevant
networks. The experts can then leverage their knowledge with specialisation in purchasing which
increases overall productivity and efficiency of the company. They are “results-driven” with a
focus on delivering specific results in accordance with instructions given. It is through the access
to such specialists that cost is also saved on training and development operations as the staff are
already skilled in the field.

3. Market leverage

Since the company can now focus on core functions, companies would enjoy market leverage.
Outsourcing which creates such market leverage for the company would also allow for better
discounts.

4. Transaction cost

The transaction cost which would generally be higher per purchase, would be reduced due to
economies of scale as a direct consequence of outsourcing. A procurement outsourcer can
leverage their economies of scale and have staff which is experienced and well-trained to enhance
efficiency and cut costs.

5. Market knowledge

Increased market knowledge concerning suppliers who are apt for the job and for operations of
the business and would work best for the products being purchased, is another benefit of
outsourcing.

6. Better communication

Through outsourcing, there is also improved communication between the company, staff and the
purchasing experts, which allows for smoother running of the operations of the company.

7. Better management

Outsourcing also allows for better management and specialised management in particular fields.
Information and purchasing analysis would also be available for those well-versed with the
purchasing environment.

8. Globalization

Globalization in terms of supply of products to countries across the world, thereby increasing
reputation and building a stronger image of the company as well, is a result of outsourcing.
 9. Expert negotiation

Due to availability of specialists and experts in the field through outsourcing, negotiations carried
out by the experts would be more profitable and effective for the company.

Make the best out of outsourced procurement

1. Ensure continuity of service

A detailed transition plan in place during the commencement of handover would allow for
continuity of the service. With a set handover time, products could still be managed and delivered
as there would be a smooth transition during outsourced procurement.

2. Don’t let reduction in control bring you down

A Service Level Agreement which is both enforceable and measurable would help in ensuring the
running of the company, as there would be a reduction in control over the daily purchasing
activities due to outsourcing.

3. Agreement for outsourcing management

To make the most of outsourcing procurement, it must be managed on a continual basis and there
should be strict adherence to SLAs and contracts enforced for the same.

4. Integration of technology
Integration of technology would greatly assist the process of outsourcing. Updates of accounts,
warehousing systems and keeping employees informed makes the process much smoother.

Points to keep in mind for outsourcing

1. Security and confidentiality

Both these may be at risk, when financial management is concerned. To ensure

confidentiality and maximise security, the outsourcing partner should be vetted
thoroughly and legal contracts should be drafted with comprehensively laid down terms.

2. Communication and management guidelines

Management and communication guidelines should be set up with the provider. Due to
the fact that in-house process management differs greatly from management of outside
providers, the transition may be a little tough but the guidelines should definitely help
ease into the new management system. Well-defined guidelines and relations would also
assist in continuation of the contract on a long term basis.

3. Boost morale and avoid redundancies

 The outsourcing may leave little work for the in-house employees which may adversely
affect their position. Boost morale and ensure that the workforce knows their importance
and that they are valued.

4. Legal Costs

There may be additional costs involved in the process including legal costs which may be
avoided by ensuring that the company is aware of all such expenses and costs before
signing the contract for outsourcing.

Conclusion
“Outsourcing was the bogeyman of the '90s. Protectionists portrayed it as an evil that would take
American jobs away. Yes, some jobs did go offshore as people feared, but it made the global economic
pie grow bigger.”

Vivek Wadhwa

To conclude, there are risks involved with outsourcing, and these risks are mostly unavoidable. They can,
however, be easily overcome and moreover, taken advantage of, through proper research carried out on
service providers and ensuring that the contracts are well-written. This would allow outsourcing to benefit
the company and overcome any inhibitions regarding same. Provided that these factors are considered
and necessary steps are taken to minimise risk, the benefits can be optimised. The benefits of outsourcing
procurement would therein outweigh the risks at any cost. In the long run, outsourcing procurement
benefits not just your company, but also the global economy. It’s no longer something to avoid, but
something to embrace and make the most out of!