Why should CPOs Consider Outsourcing Procurement Services?
In all companies, be they big or small, new or well-established, procurement processes bring forth a number of challenges. In big companies, in particular, chief procurement officers are under a lot of pressure, as they are responsible for the management, administration and supervision of product acquisition processes. They are responsible for the purchasing of services and goods, which may range from IT services to office supplies and from packaging materials to furniture.
CPOs have a number of responsibilities, which include but are not limited to:
- ensuring the timely delivery of products (services or goods),
- ensuring that vendors receive prompt payment,
- managing the relationship between the enterprise and suppliers and vendors,
- negotiation of prices and contracts,
- keeping file information in an orderly manner,
- forecasting supply needs of the company.
In small companies, all these functions are performed by the CPO. In bigger enterprises with much bigger needs and requirements, CPOs have a procurement team which takes care of all these tasks.
However, it is more than obvious that outsourcing some of these functions to a third-party will make the overall performance of the CPO or his/her team much more impactful and efficient. Additionally, what comes as one of the main benefits of outsourced procurement, enterprises will save resources and cut costs.
Outsourced Procurement Support Services: Benefits and Value
Companies outsourcing procurement and supply chain services can enhance the performance of enterprise procurement teams by allowing them to concentrate their efforts and resources towards core activities. The outcome of such collaborations are improved results and cost-efficiency.
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Cost Reduction
No matter in which field of business your company operates, every market is now a place of rivalry competition. In this case, when companies are trying their best to get a step ahead of their competitors, it is more than obvious that cutting costs where it is possible to do so and using those resources somewhere else is not only the wisest, but also the most effective decision.
All CPOs can claim that procurement department is very often the largest spend category in many companies and affects every aspect of the business. This is the main reason and the primary incentive for companies to outsource some of their procurement activities to third parties.
Procurement support services provided by outsourcing companies will make the overall procurement process, with all its minor sub-processes much less complicated and much more easy and trouble-free. Not only that. When trying to stay strong in the market it is important to allocate your resources toward business activities that are of higher importance and will result in more presence in the market in the long run, while still maintaining high standards in the execution of all these processes.
In certain business organizations it is much more effective to outsource specific procurement processes to a third-party, rather than hiring a full-time or a part-time employee. Once an employee is hired, it is important to provide a working place for the new member of the stuff, including a desk, computer, etc.
Small companies spend 45% of their sales revenue on procurement services, while medium-sized enterprises spend 65%. Outsourcing procurement services to a third-party can reduce costs for up to 5% which results in substantial savings.
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Time Efficiency
For businesses that are expanding at a fast pace it is hard to keep up with all procurement processes, including keeping track of maintenance and repair, logistics, furniture and office supplies, as well as packaging materials, IT services and a number of other expenses. Making sure that all these processes are running smoothly takes a lot of time.
For starters, it might be confusing to look for all these things, as they are new to procurement processes. For already established enterprises, on the other hand, it is too time-consuming.
Sometimes companies, trying to reduce cost but still wanting to maintain all the processes in-house, pass these tasks to some of the employees. This in the majority of the cases results in a poorly-done job, as an employee, that has a very busy workload and is concentrated on totally different things, cannot shift his/her attention to procurement processes.
In this case, to save not only the time, but also the company itself, the best decision is to outsource at least some of the procurement processes to an outsourcing agency, that will provide support to the chief procurement officer.
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Fresh Set of Eyes
CPOs of companies that want constant growth and development often opt for procurement outsourcing services in order to get a new perspective on their performance. If you are working collaboratively with an outsourcing company and have a relationship of trust and fairness between you, you will not mind if a fresh set of eyes reviewed your purchasing policy, strategy and approach. For some chief procurement officers this might be somewhat unacceptable, but being open to new ideas, fresh approaches and constructive criticism is what makes businesses grow and evolve positively.
It is a common practice for businesses to refer to a third-party specialist to access the company’s working process and evaluate them. In case of procurement outsourcing, the support team of the outsourcing agency acts as the independent party and may bring a lot of improvement and fresh ideas to the company.
Additionally, the fact that the support team is neutral, helps them identify the problems and much more easily.
In addition to the key benefits that CPOs will end up with if they choose outsourcing specific procurement activities over doing everything in-house, there are a few more advantages that outsourcing has. Firstly, outsourcing agencies have a professional stuff that has expertise in performing procurement tasks. Secondly, they will do this much more quickly than heavily-loaded procurement department employees. The problem is, that in companies priorities may change daily, while the main priority of the outsourcing agency is a satisfied client.
The procurement outsourcing is growing and will continue to develop as long as there are companies that strive to cut costs, save time and increase productivity.