Outsourcing the procurement function is a strategic blunder. If the procurement staff is not strong enough to meet the needs of the organization, strengthen it. If cost savings is the rationale for procurement outsourcing, look elsewhere.
And, with all due respect for the procurement service companies out there: Thanks. We’ll take it from here.
As a career purchasing and supply chain professional, I take umbrage of companies who think so poorly of the procurement function that they seek to outsource it. Companies with weak procurement staffs should recruit and hire competent professionals who would bring value to the function through cost management, supplier performance, market intelligence and other important complexities.
Outsourcing of critical-to-success functions such as human resources, finance, and information technology may work in the realm of virtual companies or those startups looking for a quick exit or acquisition. But companies planning to stay around for a while would do well to invest in core competencies like procurement, ones that would strengthen their business.
At one point in my career, I was hired as a resident subject matter expert for a virtual procurement e-commerce company in the matinenance, repair and operation supplies commodity space. My primary job was to work with the product managers and software engineers to add real-world expertise into their web-based application that was under development.
If the procurement staff is not strong enough to meet the needs of the organization, strengthen it.
My second-biggest challenge was to break through the invalid perceptions of those never involved in procurement:
- Not every purchase requires three price quotations.
- The order is not always placed with the lowest bidder.
- Supplier sourcing is not done via the popular search engine du jour.
Those tasked with creating a website geared to procurement had never placed a purchase order. Misconceptions, lack of understanding and lack of professional respect for the function was a companywide barrier to success.
But my largest challenge was as a product evangelist at trade shows and conferences, trying to explain to procurement professionals that they could seamlessly shift procurement into the web, allow the users to place their own orders and eliminate the need for direct procurement involvement.
Tens of millions of dollars of venture capital were not enough to convince businesses to give up their procurement departments. The company failed.
Seek a balance of competencies, when it comes to outsourcing or insourcing procurement operations:
Outsource professional development
Create an outsourced procurement staff training and development program to build skills in negotiation, cost and price analysis, and strategic sourcing.
Outsource the creation of the professional development plan to provide objectivity and identify the existing knowledge gaps.
Utilize existing trade and professional organizations to provide virtual and onsite programs. Encourage professional certification as a demonstrable measure of success.
Paying for expertise is a common outsourcing technique, with companies hiring consultants and subject matter experts to assist with complex problems.
Finance may hire an M&A expert to assist in the purchase of another company. Engineering may outsource a project manager to get a new design into manufacturing, and IT may hire a team to analyze and deploy network upgrades.
Companies planning to stay around for a while would do well to invest in core competencies like procurement, ones that would strengthen their business.
Procurement — which, by the way, should be directly involved in the hiring of those third parties — should follow the same path and contract with subject matter experts to help in certain projects.
Temporary additions to staff in areas such as contract formation, commodity segmentation and administrative streamlining may be valuable in the short term. And they provide long-term value, when that expertise is incorporated into procurement operations.
Let’s call them "two-badge" employees. They are employees of companies who provide onsite services, such as network management, food service and facilities management. They wear the badges of their companies, as well as one of ours.
They are really part of our extended workforce, yet they work directly for a supplier.
In procurement operations, we can hire temporary employees to augment our staff for planning, buying and expediting. We can actively control their workload and hours.
By definition they are outsourced employees, as they are hired through a third party. But they are onsite and part of our daily operations. By agreement with their agency, some may be hired full time if warranted, a common practice for employee auditions.
Outsource procurement to internal customers
With the proper systems, process controls and technology in place, internal users can place purchase orders with approved suppliers. And while there are extensive, complicated and expensive cloud-based applications that allow for this practice, it can be quite simple.
By using blanket purchase orders, systems contracts and procurement cards, approved users can pick up wood at the local lumber yard, purchase lab equipment, order office supplies or schedule maintenance on the department laser printer.
In these cases, procurement is relieved of a significant amount of order processing while still maintaining control over the procurement process.
Outsourcing, insourcing and control. That seems like a good balance.
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