Any non-core business function has the potential to be outsourced, including procurement. So having said that, why not?
In my opinion, it isn't a good strategy to outsource procurement. We have so many opportunitys to influence a business:
- Shortening the cycle Time
- Getting involved in Research so that you can give inputs for materials from the beginning
- We are between the planing and the production, so with JIT delivery's you can reduce your Stock and again, shorten your cycle time
But to get involved, you need to be part of the Company, and I think against what Christian said, Procurement is a Core business of any company who is manufacturing or distributing something.
Hi Beatriz, I would say you need to consider a number of points including:
1) Would it be cheaper (benefit from larger travel discounts through outsourcing and cheaper indirect)
2) Indirect / Direct / Both - Most would see indirect as they do not directly contribute to the bottom line
3) Service Levels - Is the strategy to provide the best internal benefits or the cheapest
The three points above are just a small selection of things to consider in a make vs buy. I have been in an organisation where this was considered but due to the lack of visibility of overseas staff and communication breakdown there is a net increase in time spent resolving issues. A good example of this is Accounts Payable, when they are outsourced you lose that opportunity to sit down with colleagues and resolve issues. This is a qualitative measure rarely taken into consideration vs the bottom line cost benefit.
If an organization outsource the Procurement then it wouldn't have greater leverage. Procurement/Supply Chain is accountable for 65 - 70% of spend especially in organizations specialized in industries such as Automobile, Food, Furniture etc. This means, outsourcing Procurement is not a viable option, because if an organization want to see any major improvements, it should come from Procurement / Supply Chain. Also, as per surveys carried out in the past suggest that reducing purchasing costs by 5% increases the profitability by 2.5% (This is possible only thru collaboration with not just Vendors, but also Internal stakeholders). If organizations want to drive innovation, savings, product development etc. Procurement must work closely with internal stakeholders on regular basis. Hope this answers your question!
Outsourcing can work. Whether or not it will work is a different question. Lots of companies large and small have many excellent strategies. But a strategy in itself is useless. The success or failure of it comes down to the execution.
I seriously believe that outsourcing is the modern equivalent to snake oil and that too many believe that it is the answer to their prayers. It does however work when it is applied properly but this is rarely the case and when things go wrong great effort is made to hide the information. I have a number of classical examples but if you want to get more up to date, just google, BT and Cornwall County Council and while you are at it note the call centres that are being returned from India to the UK. The core problem originates where accountants and politicians with an eye on the quick win fail to address core commercial considerations and this will always reveal itself when you examine the business case for outsourcing. By the time procurement gets involved the starters gun has already gone off and anyone asking searching questions will be quickly abandoned and the old adage that "those who are not with us must be against us". I also recommend "from Hubris to High Court - the Story of Southwest One" by David Orr. This has all the ingredients of "how not to" and should be read by all those engaging in outsourcing.
Last year, I interviewed a Project Manager at Experbuy (a procurement outsourcing firm) who said that it's best for larger companies, they will benefit the most out of outsourcing. I attached a link to our Q&A. I hope this helps! https://www.winddle.com/blog/?p=1209
I would think procurement information services (eSourcing, P2P, eInvoice, etc) could easily be delivered as a contracted service. You could probably outsource he sourcing of indirects as non core. I would probably keep control of directs. Ultimately though you would still own all the contracts.