Is procurement outsourcing right for you? What SaaS companies should know? 8 Jul 2024

procurement outsourcing

Business process outsourcing (BPO) is becoming increasingly popular among fast-growing organizations seeking to adapt to changing environments. Instead of hiring in-house teams, businesses outsource core business activities such as IT, human resources, marketing, and customer service.

This pattern will persist for a while. Experts predict an 8.5% increase in the business process outsourcing industry by the end of 2028. As a result, it will remain an alternative for a wider range of your business needs.

Business process outsourcing has benefits and drawbacks. It can result in employment losses and operational difficulties. On the other side, various types of BPO suppliers can reduce costs and improve efficiencies. Outsourcing allows you to maximize performance and propel your organization to the next level of growth.

If you still need to include procurement in your BPO, it will undoubtedly happen soon.

What is procurement outsourcing?

Procurement outsourcing is an example of business process outsourcing (BPO). This process entails contracting a service provider to handle some or all procurement activities, including SaaS purchases.

Procurement outsourcing entails delegating all or some procurement tasks to a procurement service provider. This outsourcing process frequently encompasses non-core procurement responsibilities, such as indirect procurement. It may encompass more strategic duties such as supplier relationship management, RFP/bid management, budget management, and contract negotiation.

Identifying ‘why’ you’re considering procurement outsourcing can allow you to properly analyse whether the advantages outweigh the costs. Your solution could encompass business needs like the following:

  • We need to cut our headcount.
  • We need to reduce tail spending.
  • We need to supplement our existing procurement skills.
  • We need to improve how we leverage volumes.
  • Identifying these important results will allow you to prioritize the benefits of procurement outsourcing for your firm.

Read More: What Is Better For Your Aviation Supply Chain?

5 advantages of procurement outsourcing:

Outsourcing procurement has a variety of benefits that can significantly improve your business operations. Companies can increase productivity, reduce costs, and gain strategic advantages by leveraging specialist expertise and cutting-edge technologies.

Let’s look at the primary benefits and how they can change the way you approach procurement.

Utilized the knowledge of procurement professionals

Some procurement practices, such as direct procurement, strategic sourcing, and SaaS purchasing, are extremely specialized. To preserve a competitive advantage, they must continue to educate, train, earn certificates, and gain experience.

Maintaining this level of competence on your team requires educational fees, training, and your employees’ time.

Unsurprisingly, firms prioritize vital business operations over developing SaaS purchasing knowledge. If you do not have the means to sustain an investment in procurement education, your purchasing department will eventually suffer. In this case, outsourcing those purchase activities could be a fantastic solution.

Third-party procurement service providers are responsible for maintaining high-quality expertise, including category and system knowledge.

For example, SaaS procurement professionals become specialists in software products, business systems, and integration options. This expertise contributes to their sourcing, negotiating, and procurement processes.

Budget adherence and streamlined reporting

Managing budgets and KPIs may be hard, especially when teams are small and expenditures are limited. For example, procurement teams oversee hundreds of vendors, agreements, and millions of dollars in purchases. Scaling up this process to include result tracking and reporting can be time-consuming. However, a results-driven approach provides procurement (and the business) with the tools it needs for ongoing improvement.

Businesses can negotiate procurement outsourcing agreements that include reporting and KPIs tailored to their specific needs and goals. The provider is then responsible for tracking and reporting results, as well as making any required modifications to improve those results.

Leverage volume and reduce costs.

When evaluating your company’s SaaS purchases, expect to come across several providers and contracts for the same products and services.

Perhaps you’re purchasing project management software and learn that multiple other departments use the same software under different contracts. As a result, your organization is missing out on volume discounts, which might significantly cut prices.

Your outsourced procurement partner can assess your technology stack. Then, using this visibility, they’ll make clever, high-volume purchases to maximize your savings.

Supplier and expenditure management are simplified.

Outsourced procurement teams have access to high-quality software that streamlines the purchasing process. Third-party procurement services commonly use supplier relationship management software, which most use to manage the process in real-time. These software savings can help minimize overall organizational expenditures.

Cost-cutting through labour force reduction

  • Procurement outsourcing is a strategy to minimize manpower without significantly affecting corporate operations. When you outsource procurement, you’ll probably be able to remove indirect procurement positions.
  • When your company outsources procurement, senior procurement leaders oversee internal operations that require organizational participation.
  • Although you risk losing in-house experience, reducing your staff provides immediate cost savings. Outsourced buying multiplies the cost decrease.

Three hazards of procurement outsourcing:

  • There are some risks associated with outsourcing procurement functions. Here are three disadvantages to consider before making your decision.
    Outsourced companies are not experts in your industry.
  • The firm’s procurement functions are the sole focus of internal procurement teams. In contrast, procurement service providers devote their resources to a large number of organizations.
  • This adjustment may leave your business feeling as if it is not receiving enough attention. It may also necessitate spending money to educate outsourced personnel about your company.
  • Creating a regular communication schedule with the supplier can help to prevent the inevitable gaps that occur when working with an outsourced service. Project management and team collaboration solutions can also help your teams integrate and align their expectations.

In-house teams must relinquish some control.

Part of the effectiveness of outsourcing procurement stems from delegating day-to-day activities to a procurement service provider. Outsourcing this process frees up time for finance and procurement to work on strategic objectives.

Nevertheless, in other domains, including data security, it is essential to comply with internal standards. Setting expectations early, particularly for high-risk business operations, is critical to balancing the outsourcing partnership.

By documenting the outsourced firm’s requirements, in-house management will be able to delegate responsibilities while maintaining visibility.

In-house teams must manage the outsourced provider.

  • Outsourcing procurement does not absolve the duty to procure.
  • Internal stakeholders must keep in communication with your new vendor. They will oversee the transition from the firm’s present procurement to the new outsourced operations.
  • The relationship manager must devise a strategy to guarantee procurement functions continue despite personnel changes.

Is outsourcing procurement the best option for your business?

Procurement outsourcing services represent the optimal choice for your organization if:

  • You want to use the knowledge of an outside team to help make purchasing decisions.
  • You want to minimize your internal procurement staff.
  • You need more resources for expenditure and supplier management.
  • You need assistance remaining within budget, defining and satisfying KPIs, and reporting on your success.
  • You’re interested in taking advantage of bulk and group-spend discounts on business purchases.

Procurement outsourcing FAQs:

How can we use procurement outsourcing to cut operational costs?

Companies can realize substantial cost savings by capitalizing on the volume discounts and expertise that procurement outsourcing providers offer. Outsourced procurement specialists can help with procurement operations optimization, procedure streamlining, and headcount reduction, resulting in lower operational costs.

Is procurement outsourcing appropriate for all sorts of businesses?

Procurement outsourcing may be beneficial for businesses looking to cut costs, simplify procurement procedures, and access specialized knowledge. It is especially beneficial for organizations that are rapidly expanding and lack in-house procurement capabilities. Nevertheless, it may not be the most suitable option for businesses with highly specific procurement requirements or a high degree of control over their procurement functions.

What impact does procurement outsourcing have on supply chain management?

Utilizing specialized knowledge and cutting-edge technology, procurement outsourcing improves supply chain management. This results in enhanced vendor relationships, reduced costs, and more efficient sourcing.

By outsourcing procurement, organizations can concentrate on their primary competencies while simultaneously gaining a greater sense of agility and visibility within their supply chains. This method not only enhances operational efficiency but also facilitates rapid adaptation to market fluctuations and risk mitigation.

Jack Manu

Outsourcing Consultant

About the Author:

Jack Manu, an outsourcing consultant at Velan, has more than a decade of experience in assisting real estate companies and real estate agents to improve the operational efficiency. He has been helping real estate agents including many REMAX agents to focus on their core business by offering transaction & listing coordinator services, accounting service and social media marketing assistance.Jack can be reached at jack.manu@velaninfo.com

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