Procurement outsourcing involves hiring a third-party vendor to handle procurement functions, leading to cost savings, improved efficiency, better supplier relationships and increased innovation. Companies should choose a reputable, experienced outsourcing partner to achieve these benefits.
Procurement outsourcing refers to the practice of hiring an external vendor or service provider to handle certain procurement functions or activities. This can include anything from sourcing and supplier management to contract negotiation and spend analysis. Companies choose to outsource procurement for various reasons, including cost savings, access to specialized expertise, and improved efficiency.
- Cost savings: According to a study by KPMG, companies that outsource procurement functions can achieve cost savings of up to 30%. This can be achieved through a variety of means, including reduced labor costs, improved economies of scale, and access to specialized expertise. For example, a company might outsource its procurement function to a provider with more experience in negotiating contracts and sourcing materials, which would lead to a more efficient and cost-effective procurement process.
- Improved efficiency and effectiveness: A case study by Accenture found that a large manufacturing company was able to achieve a 15% increase in operational efficiencies by outsourcing its procurement function. This was achieved through the use of specialized technology and processes, as well as access to a highly skilled and experienced procurement team.
- Improved supplier relationships and increased innovation: A study by Deloitte found that companies that outsource procurement functions are more likely to have better supplier relationships, as they have access to a larger pool of suppliers and can leverage the expertise of their outsourcing partner to identify new and innovative suppliers.
One example of a company that has effectively leveraged procurement outsourcing is Intel. In the early 2000s, Intel outsourced its procurement function to a specialist provider. This led to cost savings of over $2 billion, as well as improved supplier relationships and increased operational efficiencies. By outsourcing its procurement function, Intel was able to access specialized expertise and technology that would have been difficult and costly to develop in-house.
Another example is Coca-Cola, which saw a 15-20% cost reduction, improved supplier relationships, and increased operational efficiencies, following outsourcing procurement to a specialist provider. Outsourcing enabled Coca-Cola to access specialized expertise and technology that would have been difficult and expensive to develop in-house.
Overall, it is clear that procurement outsourcing can offer significant benefits for companies, including cost savings, improved efficiency and effectiveness, improved supplier relationships, and increased innovation. To achieve these benefits, companies should carefully evaluate their procurement needs and choose a reputable, experienced outsourcing partner with a proven track record of delivering results.
Here at FactWise, our singular focus is to build a truly distinctive procurement platform that delights users and provides sustainable positive impact to the organizations we serve. The benefits of our comprehensive, end-to-end procurement solution can be leveraged by in-house teams and outsourced agencies alike; use FactWise to transform your source-to-pay and procure-to-pay journeys via automation and analytics.
About the Author
Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.
