Procurement outsourcing market was estimated to be worth approximately $2.2 billion in 2015, with an estimated growth of 12% in 2016. This illustrates how more and more companies are jumping on the outsourcing bandwagon. Read on to find out how to choose the right outsourcing partner.
If you have realized that it is time to outsource your Procurement process, how do you judge the difference in quality between different Procurement service providers?
As internal Procurement optimization can be very expensive and complicated and requires time that most companies don’t have, Procurement outsourcing has become an essential strategy for companies to remain competitive.
In fact, the Procurement outsourcing market was estimated to be worth approximately $2.2 billion in 2015, with an estimated growth of 12% in 2016. This illustrates how more and more companies are jumping on the outsourcing bandwagon.
If you have realized that it is time to outsource your Procurement process, how do you judge the difference in quality between different Procurement service providers?
Criteria that Your Outsourcing Company Should Fulfill
You should choose a company that can meet your requirements in speed, price, range, accuracy and reliability. It is important to find a partner that you can trust to get the job done in critical situations, like getting that critical manufacturing component on time.
Here is a checklist of six crucial criteria – your Procurement partner should tick all of them:
1. Timely Deliveries
Timely deliveries are the cornerstone of any good Procurement process. Late deliveries of components can result in downtime, causing delays in product deliveries. These can make clients cancel orders, resulting in drops in revenue, which you definitely don’t want. In today’s competitive landscape, you can’t afford to have your profitability affected by Procurement glitches of this kind.
Teaming up with trustworthy suppliers and partners who can guarantee that your company will receive the necessary parts or supplies on time will ensure a stable and undisturbed production process, helping your entire business.
You should look for an outsourcing partner that can provide just-in-time deliveries – receiving products when and where they are needed will enable your company to keep inventory levels and safety stocks at a minimum and in this way achieve operating cost reductions.
Your partner should also offer expedited deliveries in emergency situations to help you reduce or completely avoid downtime.
2. Quick Lead Times
Quick lead times should be another requirement which should be fulfilled, as they can help companies operating in changing markets to get the right product to market at the right time. Maintaining an agile Procurement process can help your business take advantage of growth spurts which may be seasonal while reducing the overhead costs associated with such seasonal fluctuations. You should be able to quickly execute an increase in production - this is an increasingly important differentiator in today’s competitive market, and one that should be provided by your Procurement outsourcing company.
3. Cost Reduction
Outsourcing Procurement will help you reduce overhead costs and the cost of goods if you partner with an outsourcing company that is not tied down to any one supplier and who can thus identify and obtain the shortest lead time and the most competitive pricing among various sources.
Strategic alliances are crucial here – it is best if your partner can obtain a reduction in the cost of goods through volume purchasing and if they have a supplier network which provides them with wholesale discounts off list price that they can then pass through to your company. It is an additional plus if your partner has low margins, allowing them to pass on true wholesale pricing without any additional overhead costs.
4. Broad Range of Quality Materials and Products
As Procurement outsourcing consolidates the supplier base, you should find an outsourcing partner that has deep sourcing ability. It is important to look for a company that offers a very broad range both in commodity category and vendor selection, and that offers global product sourcing and deep commodity knowledge in both domestic and worldwide markets, adding another layer of dimension and efficiency to your Procurement process.
It is also important that your outsourcing company sources materials and products of the highest quality. This will result in less re-work and scrap, and fewer returns and claims, enhancing your profitability.
5. Experience and Expertise
Experience is key. It is important to look for a company that employs experts in the fields of Distribution and Supply Chain Logistics who have years of experience in the business and who can optimize your operations by employing their know-how and Procurement best practices.
You should find a partner that has a finely tuned operational understanding of your business, enabling them to make informed decisions and have a multi-faceted approach to identifying simplified Procurement solutions for immediate value.
6. Trust and Partnership
Developing a strong relationship with your outsourcing company is fundamental in ensuring that your Procurement process operates smoothly.
Reliability and stability are the often overlooked but critically important intangibles – you should partner with a company that has a proven track record and that you can trust to get the part you need, when you need it.
Finally, your outsourcing company should truly be a partner, an extension of your business and fully invested in the success of your company, adding value by maximizing every dollar spent to aid in the achievement of your financial goals.
Do You Have to Outsource Overseas?
While outsourcing has often been associated with only using overseas firms, this does not have to be so. At CTA, we are riding a new trend of bringing some of those services back to the US by making our service price competitive with overseas firms, while providing the additional benefits of better communication and understanding of the domestic market. Additionally, rapid consumer product innovation and shrinking design/manufacture to market times demand expedited Procurement functionality, which domestic firms are better at.
CTA’s Procurement service offers a highly skilled and dedicated team to perform Procurement functions quickly and inexpensively, and with the flexibility needed to meet the changing needs of any Procurement department.
Find out how CTA can help you optimize your Procurement process by contacting us or by submitting your RFQ.