Procurement Strategy Outsourcing — The Ultimate Guide of 2022

Procurement strategy outsourcing is crucial to the success of a company as it becomes popular over the past ten years. However, not everyone knows where to start in planning their procurement outsourcing. 

For this article, we will explore what procurement strategy outsourcing is. We will also tackle the benefits and risks of outsourcing procurement. Additionally, we will present 6 steps for you to build a successful procurement strategy outsourcing. 

After reading this article, you will be able to use your learnings in your profession or your organization. This will allow you to reap its benefits when outsourcing your procurement. 

What is Procurement Strategy Outsourcing? 

Before we define what procurement strategy outsourcing is, we must first look at what outsourcing is. 

Outsourcing is the process of finding an external party supplier. The external party that is hired will take on some activities of the management and provision of services. 

Outsourcing is usually used for non-core activities. Additionally, it is often used when the company lacks an in-house expert that is skilled in making the products or services. 

Commonly, outsourcing is linked with a lack of critical scale, investments for in-house experts, or the need to acquire something from the market quickly. Outsourcing allows scaling up or scaling down depending on the company’s need. 

Now that we have a brief review of outsourcing, let us now go to procurement strategy outsourcing. 

Procurement strategy outsourcing is a plan to transfer specific procurement activities to a third party. In short, the organization creates a strategy for outsourcing its procurement. 

Procurement outsourcing falls into the following categories:

  • Tactical services 

This kind of service supports day-to-day purchases which cover processing purchase orders. Additionally, it also directs compliance to its preferred suppliers. 

  • Transactional services

This kind of service includes performing spot buys, managing tail spend, and providing support to internal category managers. 

  • Strategic services

Strategic service includes leading strategic sourcing projects or providing end-to-end category management for non-core activities.

Editor's note:

Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
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Activities Considered for Procurement Outsourcing

The table below shows the most frequently outsourced activities in procurement:

Procurement Operations
Contract Administration
Master Data Management
New Vendor Setup
Compliance Tracking
Procurement Support
Market Intelligence
Spot Buying
Tail-spend Management
Sourcing Support
Category Management and Services Sourcing
Category Management
Strategic Sourcing
Strategic Vendor Performance Management
KPI Tracking and Reporting

6 Steps in Building a Successful Procurement Strategy Outsourcing

1. Outline your detailed outsourcing goals

If your organization clearly defines its outsourcing goals, then it is ahead of the competition. 

Organizations that carefully outline their goals step-by-step are in a better position to select the right staff augmentation model. This is because the organization has taken the time to understand and weigh the pros and cons of outsourcing. 

Additionally, the other advantage of defining your outsourcing goals is the opportunity to take a look at what you really need. 

Although staff augmentation has many advantages, it has some disadvantages as well. This makes it not a suitable approach for a particular business during a period of time.

All in all, staff augmentation agencies help provide the organization with the professionals that it needs.  

2. Create a budget for the expected and unexpected expenses

The IT outsourcing market is susceptible to fluctuation over the next few years due to the changes in the global economy. Due to this, the organization still needs to budget for different business scenarios that come from the staff augmentation model.

When the organization maps out its budgets, it needs to consider the present staff augmentation news. If properly implemented, the augmentation can help reduce the overall personal budget. 

Commonly, managers cite hidden costs as one of the primary reasons why outsourcing falls short. A good IT staffing firm can help validate the needs of the organization. 

Additionally, a good IT firm can find the right balance between affordability and expected results. 

3. Select the right outsourcing engagement model

When the organization outsources its procurement process, it should prioritize the specialized skills that it is searching for. By knowing this, it becomes easier for the organization to select an outsourcing engagement model that matches their staffing requirements. 

There are a variety of outsourcing models that an organization can select. It includes offshore, onsite, onshore, and nearshore which comes with different advantages and disadvantages. 

4. Mitigate procurement outsourcing risks

Understanding and mitigating procurement outsourcing risk can reduce the financial exposure of the organization

The following are the four risks that organizations must pay close attention to:

  • Trust and control: Managers often lose sight when the organization outsources, especially when selecting the onshore, nearshore, and offshore models. The organization can build trust by learning as much as they can about the IT staffing firm they outsource. Additionally, you can know their background by speaking with their previous clients. Also, you have to make sure that both of you are comfortable with the outsourcing methodology you have agreed upon. 
  • Hidden costs: Hidden costs can severely harm customer satisfaction. The organization needs to make sure to understand all the contents of the contract before signing it. 
  • Quality issues: Besides the reduction of operational control, outsourcing can also carry the risk of quality issues. These risks can be mitigated by speaking with their previous clients if they have demonstrated commitment to quality control.
  • Confidentiality and intellectual property rights: Intellectual property rights are very crucial to the company. In order to mitigate this, the organization must make the IT firm sign ownership agreements and NDA. This will allow the organization to safeguard its property rights from those who want to replicate it. 

5. Frequently track outsourcing progress

In order to monitor the advantages and disadvantages of outsourcing, the organization needs to have a clear KPI in place. 

The key performance indicator (KPI) will allow the company to know if the augmentation model they selected is right for them. 

By measuring their performance, the organization can take corrective measures if the IT firm doesn’t meet the expectation for the project. 

6. Establish strong relationships with your clients and vendors

One of the most straightforward ways to outsource is to find a firm that matches your way of doing business. Corporate culture varies in the business world. 

Finding a firm that has the same culture as your organization will allow it to work together effectively. 

Additionally, an outsourcing vendor that takes time to adapt and learn the client’s internal business culture will foster good relationships.

Benefits and Risks of Outsourcing Procurement

Benefits
Market leverage allows for better discounts
Availability of highly skilled staff
Transaction cost decreases because of economies of scale
Better management information and purchasing analysis
Risks
Reduction in control of the organization
The outsourced firm needs to learn your integration with your technology
Needs to be managed on a continual basis
Needs a detailed transition plan before handing over the project.

Frequently Asked Questions

1. What is procurement strategy outsourcing?

Procurement strategy outsourcing refers to the strategy that an organization will do when outsourcing firms. 

2. What is the first step in making your own procurement strategy outsourcing?

The first step in making your own procurement strategy outsourcing is to outline your goals. 

3. Why do companies outsource?

Companies usually outsource because they lack an in-house expert that is needed for a product or service. 

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