6 Reasons Why Businesses Should Consider Procurement Outsourcing

Tuesday, January 21, 2014 , Cost Reduction, by Rich Rafdahl

With the customer and market demands associated with most industries changing rapidly, it is critical that an organization’s best people remain focused on the business at hand while preparing for future opportunities. Within the procurement area this is especially true. It is crucial that the purchasing staff ensure your company is receiving the best value, service and products possible from every supplier in order to satisfy your clients’ current demands and future requirements. 

With that said, to remain competitive and relevant many organizations will need to respond even more quickly, accurately and thoroughly to future market changes, supply channel issues, client requirements, competitive challenges, global options, new opportunities, technological advances and resource demands. With all this activity occurring simultaneously within most businesses, it is key that corporate management accurately determine their procurement staff’s skill sets, effectiveness, resourcefulness, workload capacity and available talent pool. In other words it may be necessary for some organizations to “think out of the box” regarding available resources and consider the 6 potential benefits listed below for procurement outsourcing.

1.  TIME: Many organizations, particularly over the last 5 years, have had to make the difficult decision of reducing staff and streamlining departments.  As a result, more responsibility has been placed on the remaining excellent staff that often has little time to invest in a major new project, solving a complex problem or managing a comprehensive cost savings effort beyond their immediate core responsibilities.  In essence there is simply is not enough time to pursue all the opportunities and projects which could help maximize value with the various products and services purchased.  Selecting a skilled, experienced and result oriented Purchasing Outsourced Group could provide the critical resources and additional time to move key objectives along while the current staff can remain focused on the daily business and customer needs.

DSCN00552. EXPERTISE and RESOURCES: An Outsourced Purchasing Staff can provide the needed expertise and resources to make a significant impact with those problem areas that in-house staff cannot effectively address and correct.   For example, they can provide the supplemental expertise for a new business strategy that is being considered such as a global sourcing initiative, international supplier evaluation, new market penetration, reverse auction tools, a new industry, a new client with unique requirements etc.   In addition they could assist in reducing costs with those expense areas that your purchasing team may not be experts – particularly with indirect spend.  Services such as payroll processing, telecom, temporary labor, energy, packaging, printing, security are not typically managed by the purchasing staff and could go unchallenged for years.

3. SPEED: An Outsourced Purchasing Team can make a big impact quickly since they can offer years of experience and an unfettered focus on the opportunities at hand.  They are not being challenged with numerous priorities changes, customer demands or routine “fire drills” that the typical staff contend with.   Since they are experts within their field of knowledge, an Outsourced Purchasing Team can drive results much more quickly.

4. NEUTRAL – EFFECTIVE: Outsourcing the needed Purchasing Support is an excellent option for a business turnaround situation or assisting an organization who is contending with margin erosion and increased costs and the purchasing area may not be as effective as it should. Obviously, time and results are critical to a successful turnaround which an experienced purchasing team can provide.   Also, engaging a neutral skilled team can help identify and eliminate existing bad habits as well as address ineffective processes, poor performing suppliers and business relationships that have obstructed the company from reaching its full potential.

5. FRESH SET OF EYES – NEW IDEAS:  By Outsourcing a portion or all of your procurement responsibility, you will invite a new perspective and “fresh set of eyes” to review your policies, procedures, strategies and approach. This can be a little uncomfortable for some but also very refreshing since new ideas may be offered that could significantly improve the business’s performance, effectiveness and cost basis of the business which in turn could improve the company’s competitiveness and profitability. I feel it is wise for every organization to periodically hire a fresh outside senior-level person and/or engage a consultant group who can offer some new thoughts, introduce cutting edge strategies, challenge the typical “group think” or status quo and ask the difficult questions that many existing staff may be afraid to ask or did ask but were not heard.

6. FINANCIAL BENEFIT: Some Outsourced Purchasing Groups can offer a much more appealing financial option since their compensation is on a temporary contract or contingency basis.   Again certain organizations may need immediate support but are not confident they should invest in a full time person(s).   Outsourcing provides a staffing option that can quickly inject highly skilled purchasing resources into the business on a temporary basis to complete a specific project.  Also, certain Purchasing Consultant Groups offer their services on a contingency basis where the fee is tied to performance and value delivered.   This can be very appealing to those organizations that have a limited budget or may not want to pay a retainer or required fee prior to an acceptable result.

 

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Did You Know!

The Boston Consultant Group concludes that a 5% reduction in procurement costs is the bottom line equivalent to increasing sales by 30%.

CRS offers its services on a contingency basis, with our fee tied to the savings secured and approved by the client.

CRS focuses on reducing the Total Cost of Procurement (TCOP) while maximizing value with key suppliers. This includes negotiating improvements in quality, services, performance requirements, terms, incentives & price change methodology.

CRS will manage all information with utmost respect and confidentiality.

CRS can develop and facilitate Reverse Auctions and complex RFQs, RFPs, RFXs and RFIs.

CEO of a film manufacturer said “What appealed to me initially was that CRS’s offered expertise in procurement and supply chain on a performance basis - contingent on results, with no risk. Within 6 months CRS provided savings in excess of $1 million".

CRS has assisted various manufacturers and distributor organizations in the food, packaging, spirits, electronics, computer, cosmetic, furniture, metals, services & construction industries to reduce their costs & increase savings.

“Cost Reduction Specialists were very easy to work with and helped us achieve savings in many areas including telecom costs, credit card processing fees, office supplies, distribution supplies and other indirect costs”- Controller Furniture Business

“CRS negotiated significantly lower prices for our temporary labor, labels and corrugated cartons programs resulting in savings that exceeded $400,000”. VP of Finance – Food Processing Organization

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