Procurement outsourcing is a topic that has gained a lot of interest in the supply chain industry. In this episode of the Supply Chain Show, Marana discusses the possibility of outsourcing the procurement function. She highlights the benefits of outsourcing certain aspects of procurement and provides insights into how companies can identify and find the right experts for the job.
The Benefits of Procurement Outsourcing
Marana starts the discussion by emphasizing the importance of standardizing processes in supply chain management. Once processes are standardized, they can be outsourced to specialized professionals, just like demand forecasting and ERP data cleanup services are currently being outsourced.
Outsourcing certain aspects of the procurement function offers several benefits. First, it allows companies to focus on their core competencies while leaving the non-strategic and transactional tasks to outsourcing providers. Companies can outsource tasks such as transactional operations, vendor management, data cleaning, and category strategy development.
Furthermore, outsourcing procurement functions saves money by reducing overhead costs associated with hiring and training in-house procurement staff. It also provides access to specialized expertise that may not be available within the company. Consultants and sourcing companies can be engaged to help create procurement strategies and implement tools like Supplier Relationship Management (SRM).
Understanding What to Outsource
To determine which parts of the procurement function can be outsourced, Marana suggests dividing the procurement process into smaller parts. This way, companies can identify the tasks that are non-value adding and can be handed over to outsourcing providers.
Marana recommends that companies focus on outsourcing three key transactional functions: tail spend, operations PRPO (Procure to Pay Order), and reporting. Tail spend refers to low-value transactions with suppliers, which can be managed effectively by outsourcing providers. Operations PRPO involves connecting procurement with accounts payable, streamlining payment processes and documentation. Lastly, outsourcing data management allows companies to offload the burden of handling and analyzing large volumes of procurement data.
Overcoming Data Protection Concerns
One potential concern for companies considering procurement outsourcing is data protection. Sharing sensitive data with external parties raises questions about confidentiality and security. However, Marana reassures that with proper data protection measures in place, outsourcing can be conducted safely. Companies can implement IT security systems, login passwords, and other safeguards to ensure data confidentiality.
The decentralized nature of remote work has also made it easier to outsource procurement functions to specialists regardless of their physical location. Outsourcing is no longer limited to the same geographical area. Companies can source experts from anywhere in the world, as long as data protection measures are in place.
Finding the Right Experts
To find the right experts for outsourcing procurement functions, Marana suggests starting with a comprehensive analysis of the procurement process. Conducting an ABC analysis helps identify transactions that do not add value to the company.
Marana provides three examples of transactional functions that are ideal for outsourcing:
- Tail spend management: Outsourcing providers can handle low-value transactions with suppliers, freeing up internal resources for more strategic tasks.
- Operations PRPO: Connecting procurement with accounts payable can be outsourced, streamlining payment processes.
- Data management: Outsourcing the management and analysis of procurement data allows companies to focus on core competencies.
In addition to supply chain expert platforms like SCMDOJO, companies can find outsourcing providers through various channels. Networking with consultants, sourcing companies, and industry experts can lead to finding the right experts for specific procurement functions.
Outsourcing the procurement function is not only possible but also offers numerous benefits for companies. By dividing the procurement process into smaller parts and identifying non-value adding tasks, companies can effectively outsource transactional functions. Data protection concerns can be addressed with proper IT security measures, and experts can be sourced globally.
Procurement outsourcing enables companies to focus on their core competencies while reducing costs and gaining access to specialized expertise. With careful analysis and choosing the right experts, companies can optimize their procurement processes and drive value within their supply chains.