Should My Business Outsource Its Procurement?
Backed by many years of procurement experience in the public and private sector, Procurement Co co-director Heath Jess has seen many businesses come around to the idea of outsourced procurement.
According to Heath, however, there's still a long way to go.
"Procurement is still viewed as a service that businesses need to deliver themselves. Ten years ago, it was the same for HR, IT, finance. But while certain elements of the purchasing function do need to remain in-house, procurement and contract management can be outsourced."
"I don't believe outsourcing of a procurement function is a good idea for all organisations. There are many high performing procurement teams that other companies should aspire to build for their own organisation; however, building a high performing and sustainable in-house procurement team is very difficult. Therefore, companies should also be open to outsourcing the service where there is a poor performing procurement function or the function is not yet developed."
So, what's keeping businesses from making this shift and what are the benefits of freeing up your internal teams to focus on core competencies? We sat down with Heath to find out.
The Procurement Co outsourced procurement model
How is an outsourced procurement model different to what your business is likely already doing?
According to Heath, "Where we differentiate is that we can match the specific skill set and industry experience with the requirement of the project."
Businesses usually seek outsourced procurement services "for major projects, where there's a high risk if it's not delivered properly," explains Heath. "That can be everything from delivery of a major construction project to management of a high-risk contract to ensure adequate implementation and management of external parties."
That's because when you hire professional procurement consultants, you have access to their massive wealth of professional experience and human resources. They'll know exactly how to deliver your project based on the firm's collective expertise and proven procurement methodologies.
This illustrates one of the benefits of moving to outsourced procurement - you don't need to make the shift all at once.
"Our work usually starts on an individual project level, delivering one major project and that eventually leads to others," says Heath. "Unless you haven't formed a procurement team already, it can be difficult to flip the switch to an outsourced model, so generally businesses will seek assistance for particular programs or contracts and shift over slowly, growing from there based on performance. They can also pilot outsourced procurement on a critical project or initiative, to see whether their organisation would benefit from an outsourced model."
What are the benefits of outsourcing your procurement function?
In recent years, Heath has seen a greater willingness to move towards an outsourced procurement model.
"While businesses used to accept delays from the procurement function as business as usual, there's now a much stronger focus on performance. Businesses are now more willing to change the norm and say, 'Okay, it isn't working - how can we fix or change this? What are the options available?' and outsourcing is becoming much more viable."
Start-ups and new companies are also more likely to outsource their procurement.
As Heath explains, "These businesses are purely focused on their core service and that's what they focus their resource profiles on."
It's not just start ups who should think this way - anywhere overall business performance is impacted, outsourcing should be considered. Heath describes three key benefits of letting a company like Procurement Co handle your procurement needs:
1. Higher standards
As with all services, your business' procurement needs to be delivered at a high level. When you outsource, you can meet that requirement by setting Key Performance Indicators (KPIs) for the service and hold the provider accountable - something that can be difficult to do to an internal function.
2. Lower cost
It's easier to manage the cost of an outsourced model because you're able to ramp up the service during peaked periods and down when procurement activity is closed out.
3. Different delivery models
By working with experienced professionals, you'll be able to utilise different procurement strategies and models, all in order to find the most efficient, cost-effective option. Outsourced procurement can be much more nimble, especially because of the ability to match skill sets with a particular project.
Thinking about outsourcing any aspect of your procurement services? Reach out to the team at Procurement Co today to find out how we can help.