Procurement outsourcing is on the rise mostly due to its large cost saving potential (Central Trading Agency, Inc or CTA, Inc. provides to its clients up to 30% savings on their procurement expenses), but also due to ability to provide first class procurement service to companies. Most companies are unable to manage a large number of suppliers, especially when it comes to non-core spending, or don’t have the sufficient time or money to invest in their procurement department staff.

The benefits that outsourcing provides were the main reason why procurement market was worth $220.00 billion in 2015 and marked a 12% growth in 2016.

However, many companies still find it hard to understand benefits of  procurement outsourcing and determine the appropriate solution for their own procurement department or the company as a whole. 

Based on our 20 years long expertise in delivering procurement outsourcing services to numerous companies, we have compiled a list of questions that companies are most interested in as an attempt to provide practical and valuable answers.

1. What is procurement outsourcing?

Procurement outsourcing usually means long-term daily management of a group of procurement processes (e.g. requisition, supplier management) for multiple categories (e.g. electronic equipment, chemicals, industrial supplies and equipment, telecom, IT hardware, etc). Long-term partnering is normally agreed on 36 to 60 months of service, but there are procurement companies, such as CTA, which do not require long-term contract or up-front investment. Results are the best proof to provide companies on why they should partner with small procurement company like CTA.

Procurement outsourcing varies depending on what type of service your company may need and it can involve non-core procurement services or complete outsourcing.

To decide what type of service is most appropriate, you should first determine whether procurement is something that your company views as a strategic differentiator. Are you going to make the necessary internal investments to become and remain a high quality procurement department? If your answer is yes, then a supplemental procurement outsourcing relationship with knowledge skills specific to your needs can be of help. If, however, your answer is no, then full management outsourcing is the best choice for you.

One of the main roles of procurement outsourcing is to leverage its long term relationships with suppliers and provide your business with the most competitive pricing. Savings for non-core commodities through outsourced services can range from 5 to 30%, thus offering the greatest potential rewards over any other outsourced business process. In addition, executing in-time order delivery reduces manufacturing cycle time and boosts productivity  for the company as a whole.

Partnering with a procurement company can improve entire production cycle by optimizing cost of goods and minimizing inventory levels.

2. Why do companies decide to outsource?

The reasons companies ultimately decide to outsource are often very different, but it usually narrows down to two reasons - cost-cutting and ability to focus on their core operations. However, once they better understand the capabilities that procurement companies bring and how they can use them to improve their organization, they come to realize other benefits as well.

Maximizing Efficiency and Gaining Time - Outsourcing your procurement activities gives your staff more freedom and flexibility to focus on core competencies and business development which will ultimately lead to a greater market share.

Boosting Competitiveness - Outsourcing in procurement could be a good  strategy that will ensure your company remains competitive in today’s fast paced market. By outsourcing your procurement needs to a well established and proven partner, you may be able to access best in class tools and resources without making additional investments and automatically improve overall procurement performance (i.e. achievement of a greater level of cost savings on purchased goods and services). For example, CTA’s focus on delivering only high quality goods to its partnering companies translates to reduction of mishaps caused by returns and reorders.

Cost Cutting - Procurement outsourcing reduces overhead costs and saves on commodity purchases through volume purchasing. Not only will you have highly knowledgeable professionals at your disposal, you will also achieve best pricing strategies.

Hiring Once - By partnering with a procurement outsourcing company, not only are you having one point of contact for all your supplying needs, but you will spare yourself from having to hire and train procurement in-house professionals over and over again. In case of CTA, we provide a dedicated manager for each company and a superb customer service that tends to every company’s needs in no time.

Stability - Partnering with a procurement company will increase your long-term stability of procurement functions, especially regarding point of contact that you can always rely on. It will also help you with attaining a greater control of data and consistency in reporting.  

Supplier Diversity - Our colleagues in Lockheed Martin say that for any company today, remaining competitive depends on using a broad variety of resources.  Diversity and inclusion are indispensable in building both a good workforce and a powerful supply chain. 

Thinking and ideas that come from such a diverse and rich source bring solutions to the everyday challenges of customers and the nation in general. As a foundation of supply chain management, supplier diversity helps job creation and benefits overall economy by offering opportunities to businesses owned by minorities, women, veterans and people living in disadvantaged areas.

Working with a diverse set of suppliers increases competitiveness in delivering high-quality and affordable products.

As a diversity supplier Central Trading Agency partners with over 3,000 worldwide vendors and always aims to provide the company with best price-quality-availability value. Established relationships with numerous different vendors and in-depth market knowledge ensure that all deliveries are timely and accurate, plus there are no restrictions on type of supplier, size, quantity or price of product that is sought after.

3. How do you know if procurement outsourcing is for your business?

You will simply need to examine your own company long term requirements before you make any decisions and maybe consider the question: do you need assistance procuring non-core supplies or would your company benefit more from complete outsourcing?

If you need to improve your procurement capabilities, but do not have the time or the resources for doing so, you should consider outsourcing. If the number of suppliers or the one supplier you are partnering with are getting too difficult to manage - outsourcing is also a good business choice. Finally, if your analysis or strategies require that your team focuses on developing your business, then it is also time for procurement outsourcing.

4. How to choose the right procurement company?

The main point is that companies should look for providers that have genuine long-term operational experience in procurement order placement and fulfillment. Procurement can be a strategic function and requires a tailored solution and experienced partner, which is why procurement companies that only provide consulting or technology solutions usually do not have the know-how or ability to manage both the strategic and day-to-day activities of a procurement operation.

The three most important traits that companies should look for are experience, speed and customer service. 

Experience – Procurement companies should have long-term relationships with suppliers and a track record of success for more than just a handful of companies. The procurement company should have secure finances, growth plan and a proven commitment to procurement outsourcing. Being a pioneer in the business since 1996, CTA has fulfilled more than 50,000 orders and has enough practice and understanding of the industry to provide the best service in the business.

Speed – Due to over-emphasis on cost-cutting in procurement, some vendors may justify their lack of speed with lower prices, but poor timing can affect the entire production process. Outsourcing your procurement to the big company can seem like a safe choice, but big companies are usually limited with complicated procedures that can prolong the processing and delivery timings. Small procurement companies, such as CTA, can respond to your RFQs much quicker, process your order the same day and deliver at the promised time. What is more, CTA is often been regarded as a “go-to” company for Hot orders and locating hard-to-find items that other vendors usually give up on.

Some may defend themselves by saying that “Haste Makes Waste”, but CTA is proud to say that the attention to detail in these speedy orders is given equal priority.

Customer Service – Similar to speed, most big procurement companies do not have time to thoroughly approach each and every customer and ensure that all their procurement needs are fulfilled. As a company that focuses solely on procurement, CTA has dedicated managers making sure that the clients needs are satisfied. CTA’s team consists of experts in the fields of Distribution and Supply Chain Logistics making informed decisions aligned with business goals and ensuring that the Procurement process runs smoothly.

Once you have gathered the information on the needs of your company for procurement and found a valuable partner that you can rely on - the implementation phase of the outsourcing relationship should run smoothly.

6. How to know if the procurement company is reliable?

There is no complicated analysis for this, simply look for clear examples of a procurement company’s commitment and their ability to deliver. 

For example, CTA has been in procurement for over 20 years and we pride ourselves in accurately fulfilling and delivering 99.9% of all orders.

7. How to prepare organization for procurement outsourcing?

Many outsourcing arrangements yield positive changes for employees providing more space for them to improve in business development and their core activities. Make your procurement team aware of your intentions, plans, transition approach and timing and the benefits to the department and the organization as a whole. 

Keep in mind that internally, you need to design your future organization focusing on how roles may change for those responsible for managing the procurement outsourcing relationship. If your company is completely outsourcing its procurement, then the internal procurement department has a job to transform itself from a procurer of goods and services to a manager of outsourcing services. 

Determine the internal and external policies and processes and desired benefits of the outsourcing, so that you can compare and see the value that the outsourcing can provide. 

8. How to manage procurement outsourcing?

In order to make your procurement outsourcing successful you have to consider following success factors. 

Determine Achievements - Define procurement outsourcing goals. You have to determine what are the company’s objectives in outsourcing procurement and are they achieved or even surpassed by outsourcing. 

Establish Alignment - Make sure that your procurement partner’s service performance, problem solving mechanism and overall proactive approach are aligned with your expectations. Determine what kind of support you will require and how they will be evaluated. Additionally, ensure that your procurement partner has the flexibility to change with your changing business goals.

Make The Transition Smooth - Maximize procurement benefits while minimizing disruption and risk for the business.  Make sure that the procurement company learns about your business, your services, and product requirements.

Share Information - Reporting with accurate detailed information is the best way to measure procurement outsourcing goals. You need to decide what information is required, how this information will be gathered, who it will be reported to and how it will be used.

9. How to ensure good results when outsourcing procurement?

Be sure to clearly define your expected results and the combination of different metrics (savings target, customer survey results, invoice reduction, etc) and then follow to see if your company and the procurement company achieve those results. Then review your procurement team and company performance. Is your business improving? Is your procurement team performance higher? If so, then your choice of procurement outsourcing and a procurement partner was the right choice.

10. Does procurement outsourcing mean that there will be lay-offs?

Procurement outsourcing offers companies the ability to focus on their core competencies and gain access to leading external capabilities in non-core activities, ultimately improving the overall level of procurement performance and results across all categories and activities without making large infrastructural investments. 

If you are still not sure why you should outsource your procurement or have additional questions - contact us, we’ll be happy to help. 

In case you already decided to outsource your procurement, you can submit your RFQ here.

READ MORE: Why procurement outsourcing makes good business sense