Procurement Outsourcing Service Providers started off a few decades ago when companies found ways to process orders and invoices more efficiently. It grew and got labeled as procure-to-pay (P2P) and remains a well-liked solution for managing volumes of repetitive transactions. Financial procurement, where low-cost/high-volume commodities are being sourced is that the next favorite area for outsourcing. Lately, Financial procurement outsourcing has expanded into a wider range of activities, even getting into areas like strategic category management, supplier selection, and contract negotiation. Non-core services are the foremost likely candidates for outsourcing: HR services, I.T. support, facilities management, and logistics.
According to CIPS’ definition of procurement outsourcing, it also can include “the provision of procurement services and processes within an operation which can involve the transfer of individuals and/or assets to a different company. Procurement service providers (PSPs) may have a full-service offering taking up the whole procurement function of an organization. Other smaller PSPs may manage just one element of a purchase function like spend analysis or contract management.
1. They outsource strategic buying only in categories where doing so offers clear value.
2. They need a particular understanding of the sources of that value and the way to unlock it.
3. They choose outsourcing partners that have the capabilities to deal with those sources useful, then define and implement agreements that maximise the prospect of capturing potential savings
The choice of a PSP depends on its capabilities, the dimensions and complexity of the available market, and therefore the buying organization’s relative influence therein market; the expertise and availability of resources will affect the choice. Outsourcing works best when the power to manage a strategic category in-house is low.
Trends in outsourcing
There is a growing interest within procurement about outsourcing data-heavy activities like spend analysis, supplier performance management and tender evaluations. Tracking of realized savings has always been a headache and a subject of disagreement thanks to varying methods of calculation – by outsourcing this to specialists there's less room for debate.
Governance, regulation and compliance is a neighborhood that's increasingly becoming onerous for companies, especially within the banking and healthcare sectors, and is, therefore, a candidate for outsourcing.
The outsourcing agreement
When a choice has been made on what are often successfully outsourced a financial procurement must be selected in line with in-house procurement policy. this could include normal supplier due diligence to determine the company’s capabilities, including reviewing the supplier’s financial statements to make sure that the business is profitable and therefore the supplier isn't in danger of failure. Next, the idea on which the partnership will work must be negotiated and confirmed. the connection must be formalized during a comprehensive contract with an enforceable service level agreement that defines the principles of the sport. Key performance indicators got to be clearly defined. These are the metrics wont to measure performance and therefore the calculation of bonuses.
In the SLA, risks are often minimized by defining:
• Minimum acceptable service levels with penalties/incentives
• Who owns the data?
• Who owns the work developed during the contract?
Managing the outsource partner
Implementation is usually the stage at which the outsourcing project fails. Stakeholders, if not consulted, are often obstructive and delay the method . The manager’s role is to deliver the service to users, monitor the PSP’s performance, ensuring delivery against the pre-set KPIs.
Advantages and drawbacks of outsourcing
The advantages are well-documented by the PSPs themselves, the disadvantages, less so. Among the leading full-service, PSPs are Accenture, Capgemini, Infosys, and IBM. the benefits are
• Lower costs thanks to PSPs’ economies of scale by aggregating customers’ requirements
• Outsourcing low value/high volume purchases free up internal expensive resources
• Access to global expertise and market knowledge in categories where there's little in-house capacity or experience
• Time-consuming negotiations and contracting are managed by specialists
Because outsourcing involves delivering direct control to a third party it comes with challenges. These could also be service delivery issues, a scarcity of flexibility, and unforeseen management crises at the PSP. Open lines of communication at the least levels are vital to the success of the contract. regardless of the function being outsourced, the aim is to make an extended-term partnership that's designed to realize quite just cost-cutting.
