Today’s increasingly competitive market is forcing companies to improve operations or face diminishing market share. As internal optimization can be very expensive and complicated and requires time that most companies don’t have, Procurement outsourcing has become an essential strategy for companies to remain competitive.
The outsourcing trend has accelerated in the corporate world as it has been found to create more efficiency and reduce costs. Actually, studies have shown that the biggest growth area in Business Process Outsourcing is in Procurement outsourcing because it quickly yields the biggest returns.
In fact, the Procurement outsourcing market was estimated to be worth approximately $2.2 billion in 2015, with an estimated growth of 12% in 2016.
Unlike other strategies to save money, Procurement outsourcing doesn’t require up-front investment. This is why it has become standard practice for an increasing number of companies. Internal purchasing departments are increasingly relying on 3rd party Procurement expertise to improve operations and drive down costs. Some industries, such as the Automotive industry, now outsource almost every one of their supplies enabling them to be more efficient in their core business of parts assembly.
Signs That Show You Should Consider Outsourcing Your Procurement
How do you know if it is time for your company to consider outsourcing? Here are some signs:
- Layoffs or internal cost-cutting forcing the Procurement department to do more with less
- Growth spurts increasing Procurement demands for specific projects without allocating additional Procurement resources
- The need to add Procurement staff, increasing the perception of the Procurement department as a cost center
- Dealing with many vendors for small one-time purchases because there many items you procure only occasionally
- Existing vendors failing to identify best sources for products
- Existing vendors failing to meet delivery schedules
- Project cost overruns due to the late delivery of critical component parts
If your company has experienced one or more of these challenges, it would be a good idea to start considering outsourcing. Procurement officers are under such great pressure to be more efficient and to do more with less. Outsourcing non-core purchasing functions can relieve that pressure.
The Advantages of Outsourcing Your Procurement Process
What are the two main business strategies that affect the bottom line?
- The first is to increase sales revenue;
- The second is to reduce the cost of doing business.
Procurement outsourcing has the potential to accomplish both objectives.
How? Firstly, it allows companies to dramatically reduce costs by reducing the supplier base from dozens or even hundreds to just one. Secondly, improving Procurement operations means better availability of materials for manufacturing; therefore, while saving money on direct Procurement costs, companies can also increase sales revenue.
Reduce Cost of Goods and Overhead Costs
Why does Procurement outsourcing offer greater potential for savings than any other type of business process outsourcing, particularly for manufacturing companies?
With between 30% and 70% of the total budget of manufacturing firms going into cost of goods, even a small percentage of savings can yield tremendous results. Optimizing cost of goods has a substantial impact on total profitability.
Companies that outsource can avoid being tied down to any one supplier, and can allow their Procurement partner to identify and obtain the shortest lead time on requests and the most competitive pricing through volume purchasing. Alongside optimizing the cost of goods, Procurement Outsourcing also helps reduce overhead costs.
Save Time and Improve Operations
Besides saving companies money, Procurement Outsourcing can save companies time. Time-consuming and tedious everyday tasks can be delegated to a 3rd party service provider, allowing decision makers to focus on core competencies and optimizing their overall strategy.
By outsourcing their Procurement process to experts who specialize in Procurement alone, companies can significantly improve operations. Procurement outsourcing companies employ experts in the fields of Distribution and Supply Chain Logistics, Manufacturing and Product Development. These people usually have decades of experience in the business and can optimize operations by employing their know-how and Procurement best practices.
They also bring vast commodity knowledge and excellent order execution to the table. It is important to note that Procurement outsourcing companies are better equipped to ensure that each order is followed through to be received accurately and on time. This is crucial as it avoids delays in deliveries, which can lead to production delays, causing huge expenses.
Finally, such companies usually have a finely tuned operational understanding of the businesses they are outsourcing for, enabling a multi-faceted approach to identifying simplified Procurement solutions for immediate value.
Procurement Outsourcing Advantages Checklist
Summing up, by outsourcing Procurement, companies achieve the following benefits:
- Focus on core competencies for greater market share
- Increase long-term stability of Procurement functions
- Reduce cyclical staffing demands
- Reduce supplier base
- Reduce cost of goods
- Reduce overhead costs
- Off-load the time burden of tedious time-consuming tasks
- Improve order execution
- Reduce costly downtime and manufacturing cycle time
How to Choose the Right Procurement Service Provider
If you have realized that it is time to outsource your Procurement process, how do you judge the difference in quality between different Procurement service providers?
Choose a partner that can meet your requirements with on-time delivery accuracy, and that you can trust to get the job done in critical situations, like getting that critical manufacturing component on time.
Your outsourcing company should truly be a partner, an extension of your business and fully invested in the success of your company.
Unfortunately, outsourcing has often been associated with only using overseas firms. At TRIDENTCIRCLE, we are riding a new trend of bringing some of those services back to the US by making our service price competitive with overseas firms, while providing the additional benefits of better communication and understanding of the domestic market. Additionally, rapid consumer product innovation and shrinking design/manufacture to market times demand expedited Procurement functionality, which domestic firms are better at.
LORANGO’s Procurement service offers a highly skilled and dedicated team to perform Procurement functions quickly and inexpensively, and with the flexibility needed to meet the changing needs of any Procurement department.
Find out how TRIDENTCIRCLE can help you optimize your Procurement process by contacting us or by submitting your RFQ.