Global outsourcing has become popular worldwide due to its various benefits. Many large companies especially are going for outsourcing procurement for their business requirements. This helps them to save money!
Its focus is mainly on cost-effectiveness, increasing profits and compliance. It might be possible that the only difference between a successful company and failed company is its procurement strategy. The profitable company has a good procurement strategy which allows them to earn profits.
There are many renowned companies that have gained a competitive edge with their purchasing strategy. Some of them are Amazon, Walmart, Tesco, etc. When it comes to such large companies with complex operations, procurement can be quite tough and confusing.
This is why most of them prefer to go for procurement outsourcing instead of getting their own top-notch procurement capabilities. Procurement outsourcer can maximize the profits by increasing the level of production after reducing the cost. They also provide skilled, trained and well-experienced staff.
Apart from large companies, smaller companies that have lesser internal procurement abilities and have seen remarkable growth abruptly are also shifting to outsourcing procurement. They can now witness the advantages of external expertise and structures.
Companies which lack the abilities to search for good suppliers, cannot get good discounts or do not have sources to purchase skilled staff is choosing outsourcing procurement.
Top advantages of outsourcing procurement are:
- The cost of training, computerization, headcount and office space is reduced.
- The market is used to gain maximum discounts.
- The economies of scale lower the transaction cost per purchase
- Maximum market benefits that enable to select the best supplier for every product that is to be purchased
- Experienced personnel which is expert in the purchasing task
- Communication between the company staff and purchasing experts gets improved remarkably.
- For people who understand the purchasing industry, an enhanced buying analysis, and management information is available.
- Same products are usually required in various industries and this is meant as globalization.
- In the procurement field, negotiation plays an important role and it is the most effective and profitable when played by an expert in the field.
Disadvantages of outsourcing procurement are:
A limitation in control:
Outsourcing takes away your control to a great extent. Companies lose control of daily activities of purchasing. Therefore, you must ensure to choose a reliable global sourcing procurement company and get into an enforceable and measurable service level agreement (SLA).
Integration:
You will need to integrate technology, staff, accounts, and warehousing. Your team should know what is going on and the other factors should be updated efficiently on a daily basis. You need to motivate your staff to ensure that they are aware of what is happening so that they can treat such procurements as a part of your business.
Continuity of service:
The hand over time is crucial and it has to be proficiently. You need to make sure that during this time products are continued to be delivered. You need to have a detailed transition plan.
Outsourcing management:
When you choose to outsource procurement then you have to make sure that the process is managed on a continuous basis. You need to ensure the compliance to your service level agreements (SLAs) and contracts.
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Wrapping up:
When companies choose procurement outsourcing, they are able to focus on their major operations and capabilities. It will boost their confidence as now they will have a profitable and effectively managed purchasing activity.
Companies of all sizes have started using procurement outsourcing from emerging markets to gain a beneficial edge over cost, labor and manufacturing services. Outsourcing procurement offers the most economical purchasing to companies.