I wanted to write my Master’s dissertation around the topic of outsourced procurement. My mentor asked: “Will you find anyone who is willing to talk about the way to get himself laid off?” I took another subject, but outsourced procurement continued to grow.
The world is moving forward. Whether we like it or not. Especially the COVID-19 pandemic (back in 2020.-2021., if you read this post in the future), revealed how much work we can do remotely.
Procurement is generally considered an in-house operation. Can we outsource it?
Well, operational procurement will go away soon anyway. Creating LPO’s and sending them to the suppliers is a non-value adding task. Even the average ERP systems have this possibility, we only need to fill them with the right data to process.
When it comes to strategic procurement, things are a bit different. How to do strategic sourcing, tendering and contracting? Companies claim that this is difficult. It seems outsourced service companies do not have the necessary category related knowledge. , the real question is: if the stakeholder knows what he wants and can express it, is this knowledge needed? Or can the Procurement Professional provide a form to be filled out, and serve as a connector between the problem and the solution? And then focus on getting the right supplier and the right price?
What would be the major obstacles to outsourcing procurement?
If one company does procurement for two competitors, the outcome can be very different. Buying the same item will result in savings due to increased volume. But what if one company finds out about the component that makes the competitors’ final product better? I would argue that in today’s world almost anything can be reverse-engineered. Also, accounts can be given to two persons. Even the employees in critical positions have a non-compete clause that is rarely longer than a year.
In manufacturing, knowing the process in and out does help procurement while doing their job. In my career this knowledge helped me to look into a procurement project from a more holistic approach. I was able to see potential issues further down the supply chain. And as well potential ROI from another department due to better quality of the semi-finished product or efficiencies. This is correct if we look short-term. But let us look from a 5-year contract perspective. Plus, the fact that the outsourced procurement team is in most cases larger than your current team. It will take them about 6 months to learn the processes, after which their combined knowledge will bring even better results.
The need for constant communication
I am a big advocate for constant communication with stakeholders and suppliers. This is one of the core responsibilities of a good procurement team. In today’s world we have so many tools for remote communication. Face-to-face meetings become something unusual. So, do we need to have our procurement team sitting in the head office, in an expensive downtown building? I don’t think so.
I do not think that category knowledge is needed today. In my career I worked with dairy, stainless steel, food, construction and facilities management. And I have not found it difficult to adopt to the new categories. Except in very specialized industries. The knowledge about the product the buyer needs to have can be acquired online and it is accessible. If you have a buyer willing to learn, he will get up to speed real quick. After all, we need to be “jack of all trades, but master of none”.
How does technology impact outsourcing of procurement?
In today’s world, you can hire one person to solve only one problem for you as a part-time consultant. So, instead of having one “Average Joe”, you can have five specialists that work an hour per day for you. This is probably the most visible way how technology is supporting outsourced procurement.
But, outsourcing does not mean only replacing our workers with a company that will do it instead. Many procurement jobs can be actually digitalized.
Sourcing is now so much supported by technology that almost literary anyone can do it. Whatever gets your way, just google it. Chances are you will get a list of several suppliers on the first couple of search results pages. Use the tendering software to place the RFQ. Sounds too simple to be true, but it is like this for many items and services that are widely available.
Solving a particular problem using technology: spend analysis, category analysis, tendering. There are applications for each of these issues, and systems that cover all of these points. Mix and match what you need. Many of the small providers will as well go the extra mile and solve your problem with a customized version of their software.
This article is an exercise to see what are the possibilities. I am a full-time procurement professional, and would not like to see my team getting laid off in favor of an external service provider. But the world is changing. In the Sources and Links section you will find a couple of companies that already offer Procurement as a service. Many positions are now becoming short term project related gigs. Done by young people sitting in coffee shops and on beaches around the world. Whether we like it or not, some of us will get an offer to do the same. Or be replaced.