How Procurement Outsourcing can save Hundreds of Thousands of Dollars while Saving Jobs

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Published: 31st October 2012
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Many companies do not know what procurement outsourcing is and why it can become a vital part of their operations. In the 1990’s, the AT Kearney consulting firmstarted procurement outsourcing and began offering procurement outsourcing consulting services. Since then, procurement outsourcing has gained both acceptance and momentum.

The main reasonthat the field of procurement outsourcing has begun to expand rapidly in recent years is its ability to generate hard dollar cost reduction savings. As procurement outsourcing has continued to mature, cost reduction has increased and continues to be the main reason why companies continue to outsource all, or part, of their procurement.

What is Procurement Outsourcing? Procurement Outsourcing is the action of a company to outsource some or all of their procurement functions, and/or the acquisition of goods and services, through a third party. This does not mean that the company loses control of the procurement process, but merely that is utilizesthe services of third party service provider. By taking this approach, the company which elects to implement outsourced procurement can realize cost reduction, improved efficiency, improved compliance, and enhanced performance. Procurement outsourcing can involve some or all of the company’s staff, technology, systems, and vendor management. In most cases, the procurement outsourcing firm will report to the company which has engaged its services. (Sigaria, Ltd., Procurement Leaders)

With cost reduction being one of the main driving factors for companies, procurement outsourcing helps meet this need. Even with economic upturns in certain industries and geographical areas, profit margins are likely to remain low, and global competition will continue to increase. In addition, raw material costs have increased and are expected to continue increasing, and the world’s economic conditions will continue to affect more and more nations, companies, and people. With companies spending more than half on their external goods and services for every dollar earned there is the potential to reduce a great deal of costs. (Aberdeen Group, Accenture, PurchasingData.com)
There are many other procurement outsourcing benefits. Due to cut backs in the procurement area, many companies lack the internal staff or have no staff to conduct the necessary procurement processes. Because of this, companies are leaving billions and billions of dollars on the table in terms of potential savings.In addition, many smaller companies cannot afford a purchasing department, or at best, they have one person who buys for the company. Accordingly, little or no cost reduction, vendor negotiation, updating of contracts, or price analysis takes place. Even larger companies are at not immune. For example, one $8 Billion Fortune 500 has six people in their procurement group, while another which buys $100 Million a year has a procurement staff of just three full time people!

Procurement outsourcing can be utilized to reduce costs for just about all goods and services. Some examples are: Utilities/Energy,Credit Cards, Merchant Fees, Merchant Processing, Office Supplies, Telecom, Computers, Paper, Toner, Fencing, Electricity, Natural Gas,Property Management, Maintenance, HVAC, Software, Information Technologies, Payroll, Accounting, Legal, Flooring, Asphalt, Credit, Banking, Cement, Steel, Financing, Fleet Automobiles and Trucks, Human Resources Outsourcing,Insurance, Financial Management, Sales Training, Physicians Preference Items, Signs, Printing,Cellular,Shipping, Logistics, Travel, Raw Materials, Maintenance Repair Operational (MRO) Expenses, and many other expense areas. The bottom line of procurement outsourcing is that when the acquisition of goods and services can be outsourced through a third party (the procurement outsourcing company), this will result in cost reduction, enhanced compliance, more efficiency and production, an opportunity for the company to focus on their core competencies, increased competitiveness, and increased profits.

Everest Research Institute, a well-known global consulting and research firm, predicted that U.S. procurement outsourcing would grow by 20 percent to a total managed spend of more than $170 billion in 2010. In 2010 and 2011, the Procurement Outsourcing market has come of age as the number of new contracts for these two years has been the best. This equates to market of more than 300 contracts and service providers managing more than $190 Billion (US) for their clients. In 2011, we saw more than $190 billion under management just in the U.S.!
For more information in learning more about procurement outsourcing and how to implement these cost reduction techniques visit - http://www.atscostreduction.com/

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