Jeremy Ferrer
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January
After the impact of the economic crisis in 2008, French SMEs increased their attention and sensitivity to risk control.
Many decided to outsource their Purchasing operations to specialized companies for a faster ROI on their investments and the reduction of their procurement costs.
Our procurement outsourcing service
THEprocurement outsourcing is a practice that is increasingly used by businesses in order to optimize their purchasing processes. In fact, theoutsourcing allows you to entrust the purchasing management To service providers external specialists in this field, which allows companies to focus on their core business.
However, some business leaders are constrained by the traditional anchoring of their management methods, making the change to procurement outsourcing services more difficult.
Outsourcing procurement allows businesses to focus more on their core business.
For SMEs, outsourcing procurement can reduce procurement costs, reduce personnel investments, reduce fixed investments and procurement risks, but also improve the efficiency of their procurement management.
Outsourcing procurement is considered to be the best way to reduce direct or indirect expenses.
At present, many French companies are constantly exploring the solutions offered to them on the market in order to detect new models of procurement outsourcing.
And this is reflected in the requests for studies that we receive very regularly at Buy Made Easy.
For example, one of our customers recently decided to start outsourcing their Class C purchases, also called Achat Spots or Achats Sauvages, to focus its Purchasing team on the real added value it can bring to the company, by eliminating the time spent buying pens or reams of paper.
Businesses not only need to continuously explore and innovate when it comes to procurement outsourcing, but also regularly guide and educate small and medium-sized businesses to accept the abandonment of the old procurement strategy model in place.
The general definition of procurement outsourcing in theory is as follows:
“In the case of a company's limited internal resources, in order to obtain a better competitive advantage, only its core resources with the most competitive advantages are retained. The other resources are supported by specialized external service providers. Procurement outsourcing must succeed in creating a management model that reduces costs, improves performance, improves the company's core competitiveness and strengthens the company's ability to respond to its environment.”
Procurement outsourcing only occurs when the sum outsourcing transaction costs, management costs and supplier procurement costs is lower than its own production costs.
The heterogeneity of corporate resources and the specific assets they possess are key factors that determine their competitive advantage and operational performance.
Intangible and dynamic resources and capacities, formed by the systematic integration of organizational management software.
Strategic processes depend on the competence and core business of a company.
Non-strategic processes, on the other hand, are processes that support and guarantee strategic processes, including ancillary business activities.
Strategic processes are the source of a sustainable competitive advantage in a company's market and must remain internalized.
Non-strategic processes should analyze the proximity of their relationship to strategic processes.
Those with a low degree of proximity may be outsourced.
Those with a high degree of proximity should be internalized or organized through close cooperation.
There are four structural elements of procurement outsourcing:
The objective of managing the relationship with the outsourcing partner is to make the latter's behavior consistent with the objective of the body targeted by this outsourcing.
The real purpose of outsourcing a company's purchases is to eliminate intermediaries and to give the company the opportunity to buy all, or a good part of, its purchases related to operational activities through a single supplier, in other words the procurement outsourcing provider.
This provider generally captures a more thorough and professional analysis of current market data, which will help the procurement team carry out overall cost control.
The aim is to reduce procurement costs while ensuring the smooth running of the business.
Outsourcing procurement not only makes it possible to obtain lower procurement costs, to improve the efficiency of the purchasing process but also to obtain specialized procurement services.
THEprocurement outsourcing relies on the Sourcing, that is to say the research and the selection of suppliers the most appropriate to meet the needs of the company. Les shoppers are responsible for negotiating contracts with these suppliers, ensuring that the best rates and conditions are obtained. Once the suppliers have been selected, theprocurement outsourcing also allows To pilot logistics andsupplying. Les service providers external ones take care of the inventory management and ensure the shipping products or services to internal customers of the company, while optimizing transport and storage costs.
Businesses can also focus all their intelligence and resources on their core businesses and improve their strategy in a competitive environment. The benefits of businesses that implement procurement outsourcing are mainly reflected in:
It takes a long time to restructure a company's strategic processes and just as much time to achieve concrete results.
Procurement outsourcing is an important strategy for restructuring a company's business processes. This can help quickly resolve restructuring issues that a Purchasing Department may have.
For these companies that implement procurement outsourcing, supplier management is also delegated and greatly simplifies procurement management.
If a company is unaware of the extent of these procurement capabilities, implementing “outsourced” procurement will only cultivate a potential competitive disadvantage, while closing doors to future development opportunities.
If the company does not have the resources to carry out its procurement activities successfully, this is when it will choose to outsource them.
The Purchasing Department must therefore conduct an analysis of the costs and benefits of outsourcing to confirm whether outsourcing is beneficial for the company in the long term.
While focusing resources on their core business, businesses use the resources of other companies to fill their gaps, thus becoming more competitive.
Businesses can diversify risks arising from economic, commercial and financial factors by allocating certain resources to external providers.
The company's resources and procurement capabilities are limited.
Thanks to the outsourcing of purchases and therefore the sharing of risks with external suppliers, companies can become more flexible and better able to adapt to external changes that cannot be controlled.
For businesses that outsource specific procurement processes or projects, the average cost of obtaining materials has fallen from 10% to 25% cheaper.
Sometimes the cost of buying a specific item can drop by up to 30%.
The reason why outsourcing their purchases to a specialized provider can reduce procurement costs so much is mainly due to the rich knowledge of the market and the products they acquire over time, procurement processes that are generally very mature, but also because they have a large number of customers.
Outsourcing reduces the proportion of fixed assets in the capital structure, which is conducive to its optimization.
When it comes to procurement, this is a subject that should always be managed by experts in the field. Purchasing is not the core business of SMEs, but it will involve their interests at some point.
The French procurement outsourcing services industry is still in its infancy, and many businesses continue to explore the various possibilities available.
THEprocurement outsourcing also makes it possible to reduce costs by pooling resources and taking advantage of economies of scale. By grouping purchases at the level of purchasing department, it is possible to negotiate preferential rates with suppliers, while guaranteeing optimal quality of products or services. The function Purchases Play a strategic role in the company, because it contributes to performance and competitiveness of this one. By outsourcing procurement, the company can focus on its core activities and benefit from the expertise and skills of service providers externals. In addition, it allows for a better risk management by reducing dependence on certain suppliers.
THEprocurement outsourcing requires rigorous management and good coordination between the various actors. This practice involves working in close collaboration With the service providers external, to define dashboards To measure the purchasing performance and to contract the relationships with suppliers strategic.
To reasonably define the scope of application of procurement outsourcing strategies, a supply allocation method can be used to classify and analyze the various products and services provided by the company.
In managing a company's purchasing and supplies, the cost and risk of procurement are the main issues that buyers are concerned about.
The cost of supply indicates the importance of each product or service and is generally measured by the total annual expenses of a business.
For procurement risk, the degree of risk can generally be determined comprehensively based on technical factors, the availability of procurement resources, technical requirements, and environmental factors.
In terms of the cost and risk of purchasing, products and services can be divided into 4 types:
Most products and services purchased by businesses are strategic because the cost and risk are relatively low.
The price of buying a single product or service of this type is not important, even if the purchase cost is significantly reduced.
But for total spending, it's only a relatively small economy.
On the other hand, due to the variety of purchases and the complex procurement process, this will inevitably result in a significant amount in the overall transaction cost.
Therefore, the objective of this type of management should be to significantly reduce transaction costs by significantly improving the efficiency of the procurement process.
Transaction costs can be measured by the time spent by the buyer throughout the order process.
Only by trying to simplify or eliminate this procurement process, and thus reduce its overall cost, can a company's expense be minimized.
At present, strategic procurement outsourcing is a very good choice for businesses.
Outsourcing procurement for public entities as a new management model, in a new economic era, can provide them with greater flexibility.
However, this outsourcing strategy is also a double-edged sword.
Although it seems to provide an ultimate solution, it can also contain some risks.
Therefore, when implementing the procurement outsourcing model, they should take into consideration and list all the positive and negative points that such a change would bring.
Organizations need to make a series of preparations during this implementation:
1. Improve their business model:
The extent of an organization's assets and production capabilities often determines its level of administrative leadership. The sharp increase in consumption has also caused most of these entities to be more greedy and to develop blindly. They are very often indifferent to the fact that they can form a core business and generate sustainable competitive advantages. They are used to managing all sections of the value chain including R&D, design, procurement, production, marketing, sales and after-sales service. There is generally no change in market demand (e.g. RATP). Clearly, the “vertical integration” business management model is no longer suitable for market requirements.
The aim is to establish fair commercial guarantees for the efficient operation of procurement outsourcing. They must first know how to identify their market and their contextual situation in relation to the competition in order to undertake outsourcing of supplies.
Competitiveness is based on knowledge rather than products. These businesses should first look at what the most valuable pieces of knowledge within the company are.
Second, the company's objective must be positioned on the two or three most competitive links in the value chain.
Again, a company's core competitiveness should be selected in areas where the business is most valuable, i.e. where the business can gain the most.
Finally, the determination of competitiveness should not only take into account the economic activities of the company.
They should also anticipate these future economic activities.
When all business units become “learning” organizations, global outsourcing can more effectively achieve the goals of strategic coordination, knowledge sharing, complementary capabilities, and compatibility.
Only companies can systematically and continuously integrate the balanced development of the organization at three different levels:
Individuals, work teams, and the entire system.
Building a “learning organization” also plays an important role in implementing business outsourcing.
Procurement outsourcing does not focus on outsourcing company itself, but on its management.
To effectively deal with the problem of effectively integrating internal and external processes, it is necessary to effectively integrate the core capabilities of outsourcing companies.
Businesses must first assess the importance of outsourcing procurement, as well as assess its risks and make decisions about whether to outsource.
Executing procurement outsourcing starts with a variety of cost reduction activities, during which managers must decide which tools are more suitable for these activities.
In this regard, they should determine whether the company is outsourcing one or more projects.
Next, consider choosing a supplier. This generally includes two processes of analysis and negotiation in the tender. Once the contract is signed, it is monitored by the supplier's management and its performance must be analyzed using appropriate evaluation standards.
Finally, when the contract comes to an end, management must decide whether to renew it or to change suppliers.
Reduce or control operating costs; use the company's external resources; free up resources for other business goals; accelerate the speed of project benefits; functional services that are difficult to manage or control; obtain capital funds; obtain capital funds; obtain cash flow; risk sharing.
For SMEs, here is a summary of the reasons to adopt a procurement outsourcing strategy :
Restructuring business processes takes a long time and it takes a long time to achieve concrete benefits.
Outsourcing is an important strategy for restructuring business processes, which can help businesses quickly resolve the problem of restructuring procurement activities.
For businesses that implement outsourcing, not only can they integrate the core procurement capabilities of existing businesses with the core capabilities of outsourcing providers, but more importantly, consolidate and improve their core procurement capabilities.
If the company ignores the culture of its core procurement capabilities, it will lose future development opportunities.
If the company does not have the resources to complete its purchases successfully, it can outsource them. When a company outsources procurement, it is necessary to conduct an analysis of the costs and benefits of procurement to confirm whether this outsourcing is beneficial for the company in the long term and then decide whether it should adopt an outsourcing procurement strategy. While focusing resources on their core business, businesses use the resources of other businesses to fill their own gaps, thus becoming more competitive.
SMEs can outsource ancillary procurement operations that are not effective internally, but this method cannot completely solve business problems. On the contrary, these business functions may become more difficult to control outside of the business.
As a result, businesses need to take the time to find the crux of the problem.
Outsourcing procurement can reduce expenses and improve cost control.
At the same time, outsourced suppliers have a higher degree of specialization and can achieve economies of scale.
Therefore, it is intended to have lower procurement costs and higher efficiency.
From an economic perspective, outsourcing procurement can increase the wealth of society as a whole.
THE procurement outsourcing is a strategy ofoptimization costs and risk management that allows businesses to focus on their core business. This practice also promotes performance and competitiveness of the company by ensuring a supplying efficient and of high quality, while reducing costs. However, it is essential to put in place rigorous management and good coordination to ensure the success of this approach.
SMEs can diversify risks arising from economic, commercial and financial factors by allocating resources externally.
The company's resources and procurement capabilities are limited.
By allocating resources externally and sharing risks with procurement outsourcing providers, businesses can become more flexible and more able to adapt to changing external environments.
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