When organizations decide that procurement and business activities do not need to be handled in-house, outsourcing those activities is the next step. Some organizations look to outsourcing as a way of streamlining routine tasks that do not need to be handled in-house. For example, tasks such as developing and executing routine contracts might be outsourced. Other organizations may have adequate pre-purchase tasks but are ill equipped for difficult and non-performing suppliers. These and other tasks, which are not seen as integral to the organization’s overall business strategy, present the potential for organizations to free up employee time to focus on more strategic duties.
For many organizations, outsourcing presents a win-win. The organization frees up employees to focus on more strategic duties while maintaining control over its activities. Research by the American Productivity and Quality Center (APQC) indicates that just under 30 percent of responding organizations have initiated the outsourcing of non-strategic activities in their procurement functions. Twelve percent of responding organizations plan to invest in such programs within the next two years, meaning that 40 percent of organizations find the idea of outsourcing more routine activities appealing for their procurement functions.
As part of its research, APQC compared the procurement performance of organizations that currently outsource non-strategic procurement activities against the performance of organizations that do not currently outsource. The results indicate that organizations outsourcing procurement activities adopt more mature procurement practices, have performance advantages and opportunities to reduce waste than organizations that do not outsource. Outsourcing organizations have a greater percentage of their purchase value made from certified vendors. At the median, purchases from certified vendors make up 40 percent of the purchase value for these organizations, whereas the organizations that do not outsource have half that amount. These organizations recognize the value of using suppliers that have been thoroughly vetted to ensure that they can provide the best value to the enterprise.
Research also shows that outsourcing organizations have twice as much of their purchase value made from vendors that participate in vendor-managed inventory (VMI) programs when compared to organizations that do not outsource. The benefit of having suppliers manage purchased inventory when possible, can simplify purchasing processes for their materials.
Is outsourcing non-strategic practices worth it? For organizations that have clearly identified organizational strategies and focus areas, the answer is quite possibly. These organizations recognize that there are some aspects of operations that are not aligned with those strategies and thus do not merit time from staff. Outsourcing allows these organizations to focus more on what they do best and what is important to the enterprise. It also highlights an opportunity for these organizations to carefully evaluate the processes they keep in-house to identify hidden waste.
DrContract Consulting LLC can provide you with more information on the benefits of outsourcing your procurement and business needs. Contact us today.