Cost Reductions Aberdeen research of enterprises that have outsourced management of specific procurement processes and/or specific categories of spending have been able to achieve material cost reductions that average between 10 percent and 25 percent. In some cases, material cost reductions topped 30 percent for specific categories of spending. PSPs are able to deliver such cost savings through deep category domain expertise and market knowledge, proven procurement processes, and purchase volume aggregation across multiple clients. Likewise, PSPs deliver services to multiple clients using a common infrastructure. Such economies of scale enable PSPs to deploy and manage the latest technologies and expertise and to distribute the costs of this infrastructure across all customers. As a result, PSPs can enable certain procurement processes faster and at a lower cost than most enterprises could develop on their own. And because the PSP manages the process and the resources and assets required to execute that process, outsourcing enables enterprises to achieve these benefits with much less risk. In this sense, outsourcing can be viewed as a strategy to turn fixed assets with fixed costs into flexible assets that carry variable costs and that can be rapidly scaled and adjusted to meet changing requirements.
Success requires enterprises to view outsourcing as a way to enhance overall procurement and supply management operations by transitioning under-performing assets or processes to third parties that can deliver greater economies of scale, process efficiencies, and enhanced domain expertise than are available or practical to develop in-house. In other words, an enterprise should outsource a procurement activity if it cannot sufficiently perform the process internally or if the process does not support the company’s competitive differentiation. Chief benefits that enterprises have derived from outsourcing procurement include reducing costs, improving processes and expertise, and enhancing their focus on core competencies.
There are considerable benefits to outsourcing non-core activities, including: Making more time for internal staff to focus on the business’s core activities. Providing the ability to access expert, high quality services without the need for staff training and operating costs, investment in new technologies etc. Allowing increased productivity and efficiency in outsourced activities. Streamlining of operations. Faster adaptation to change. Decreased issues with team management. Reduced overall operational costs.
Direct vs. Indirect Procurement Spend The difference between direct and indirect spend often causes confusion. Let’s review definitions and examples for both key areas of procurement. Direct spend in procurement refers to goods and services that are directly related to making products. Examples may include raw materials, components, hardware and services related to manufacturing processes. Indirect spend in procurement is the sourcing of goods and services not directly related to manufacturing of products. Indirect procurement enables businesses to maintain and develop its operations. Examples of indirect spend categories include: marketing services (media buying, agency fees) professional services (consultancies, advisors) travel and lodging MRO (maintenance, repair and operations) information technology (hardware, software) HR related services (recruitment, training) transportation and fleet management utilities (gas, electricity, water)
Making more time for internal staff to focus on the business’s core activities.
• Providing the ability to access expert, high quality services without the need for staff
training and operating costs, investment in new technologies etc.
• Allowing increased productivity and efficiency in outsourced activities.
• Streamlining of operations.
• Faster adaptation to change.
• Decreased issues with team management.
• Reduced overall operational costs