Over the past decades, corporations in various industries have implemented procurement outsourcing practices to leverage better buying power, acquire deep commodity expertise, improve compliance, have better control on indirect spend, and free up resources to focus on activities of higher strategic importance.
Facets of procurement to outsource are category management, strategic sourcing, or end-to-end procurement processes. Nevertheless, it’s not advisable to outsource strategic sourcing or category management in isolation as the first results in quick but short-lived wins and the second leads to increasing bottom-line costs.
Moreover, it is highly recommended to start with outsourcing some transactional procurement operations as a first step or combining end-to-end solutions for specific commodities. The aforesaid leads to savings in labor and administrative costs as well as data transparency that unveil additional savings with better spend management. It also represents a good starting point for incremental outsourcing. It maximizes savings potential from non-core activity and encourages procurement service providers’ commitment to pre-agreed savings targets.
However, a primary challenge in procurement outsourcing is that contracting procedures lack maturity and a deep understanding of the service offering regarding costs versus potential savings. Above all, the establishment of a measurable and defined set of performance indicators is a must.