Is procurement outsourcing right for your company?
Procurement outsourcing is a type of business process outsourcing (BPO). Is it a good fit for your organization? Here are our pros and cons.
Business process outsourcing (BPO) is becoming increasingly common for fast-growing companies focused on adapting to changing landscapes. Instead of hiring in-house teams, companies outsource critical business functions like IT, human resources, marketing, and customer support.
This trend is going to continue for a while. The business process outsourcing market is expected to grow 8.5 percent by the end of 2028. So it will continue to be an option for even more areas of your business.
There are pros and cons of business process outsourcing. It can mean in-house jobs lost and potential for operational failures. On the other hand, many types of BPO vendors can save costs and increase efficiencies. By outsourcing, you maximize performance and take your business to the next level of growth.
If procurement still needs to be added to your BPO radar, it will likely be soon.
What is procurement outsourcing?
Procurement outsourcing is a type of business process outsourcing (BPO). This process involves hiring a service provider to perform some or all procurement activities, including SaaS buying.
Procurement outsourcing involves shifting all or some procurement activities to a procurement service provider. This outsourcing process often involves procurement functions that are considered non-core, like indirect procurement. It can include more strategic tasks like supplier relationship management, RFP/bid management, spend management, and contract negotiation.
Identifying ‘why’ you’re pursuing procurement outsourcing will help you better assess whether or not the benefits outweigh the costs. Your answer may include needs like
- We need to reduce the headcount.
- We need to cut tail spend.
- We need to supplement existing procurement expertise.
- We need to do a better job leveraging volumes.
By identifying these key results, you’ll be able to prioritize the value procurement outsourcing will bring to your company.
Five benefits of procurement outsourcing
Leveraged knowledge of procurement experts
Some areas of procurement, like direct procurement, strategic sourcing, and SaaS buying, are highly specialized. They require ongoing education, training, certifications, and experience to maintain a competitive advantage.
Maintaining this level of expertise on your team comes with education costs, training, and your employees’ time.
Unsurprisingly, companies prioritize their critical business operations over fostering SaaS buying expertise. If you don’t have the resources to upkeep an investment in procurement education, your purchasing function will eventually suffer. In this case, outsourcing those procurement activities may be an ideal solution.
Third-party procurement service providers are responsible for maintaining excellent expertise, including the category and system knowledge.
For instance, SaaS procurement experts also become experts in software products, business systems, and integration opportunities. This knowledge supplements their sourcing, negotiation, and procurement processes.
Budget adherence and streamlined reporting
KPIs are challenging, especially if teams are lean and organizational spending needs to be. For instance, procurement teams manage hundreds of suppliers and agreements, and millions of dollars in purchases. Adding results tracking and reporting to this process can take much work to scale. However, a results-driven approach gives procurement (and the organization) what it needs for continuous improvement.
Businesses can negotiate procurement outsourcing agreements to include reporting and KPIs developed for their specific needs and goals. It then becomes one of the supplier's responsibilities to track and report results and make necessary changes to improve those results.
Volume leveraging and cost savings
Expect to discover multiple suppliers and contracts for the same products and services when assessing your business's SaaS buying.
Perhaps you're buying project management software and discover several other departments have the same software under different contracts. As a result, your company is missing out on volume discounts that could substantially reduce costs.
Your outsourced procurement partner can analyze your tech stack. Then, they’ll use this visibility to make strategic, high-volume purchases that maximize your savings.
Simplified supplier and spend management
Outsourced procurement teams have access to top-tier software that streamlines the purchasing process. Most use supplier relationship management software, widely used by third-party procurement services, to manage the process in real time. These software savings can further reduce organizational costs.
Cost savings through labor force reduction
Procurement outsourcing is a way to reduce headcount without heavily impacting business operations. When outsourcing procurement, you’ll likely be able to eliminate indirect procurement positions.
When your company outsources procurement, senior procurement leaders handle internal activities that require organizational involvement.
Though you risk losing in-house expertise, decreasing your headcount is a quick cost reduction. And then, this cost reduction is multiplied by the savings from outsourced procurement.
Three risks of procurement outsourcing
There are some risks to outsourcing procurement functions. Here are three drawbacks to consider when making your decision.
Outsourced providers are not experts in your business
Internal procurement teams are dedicated solely to the firm’s procurement functions. Contrarily, procurement service providers dedicate their resources to many organizations.
This shift could leave your organization feeling like they are not getting enough attention. It also might require investment to educate your outsourced team on your business.
Creating a regular communication schedule with the supplier can help eliminate the inevitable gaps in working with an outsourced provider. In addition, project management and team collaboration tools can integrate your teams and align your expectations.
In-house teams must relinquish some control
Part of the effectiveness of outsourcing procurement results from handing over the day-to-day tasks to a procurement service provider. By outsourcing this process, you free up time for finance and procurement to focus on strategic initiatives.
However, there are some areas, like data security, where maintaining internal standards is critical. Setting expectations early, especially regarding high-risk business functions, is crucial to balancing the outsourced relationship.
By documenting the expectations of the outsourced firm, in-house leaders will be able to hand over responsibilities without losing visibility.
Internal teams must manage the outsourced provider
Outsourcing procurement does not offload the responsibility of procurement.
Internal stakeholders must maintain a relationship with your new vendor. They will manage the transition between the firm’s current procurement and the new outsourced operations.
The relationship manager must develop a plan to ensure procurement functions continue through personnel changes.
Is procurement outsourcing the right choice for your business?
Procurement outsourcing services are the right choice for your business if:
- You’re looking to leverage the expertise of an outside team to help make purchasing decisions
- You’re looking to reduce your internal procurement headcount
- You need additional resources for spending and supplier management
- You need help staying on budget, establishing and meeting KPIs, and reporting on your progress
- You’re interested in leveraging volume and group-spend discounts on business purchases
How Vendr’s expertise can help your procurement team reach the next level
Are you struggling to scale procurement? Vendr's SaaS buying platform enables fast-growing companies to procure software quickly with guaranteed savings.
Vendr has managed over $1 billion in SaaS purchases across 1,200+ suppliers for finance and procurement teams. Vendr works with your organization to make buying SaaS faster and easier, using vast amounts of data and experience. As a result, Vendr will help your team access better software more quickly.