The procurement process can be quite difficult to understand, as the entire process consists of many different parties that all simultaneously work together. But what exactly is the procurement process, and what are the benefits of outsourcing the process? Read the most important information here below.
A definition of the procurement process
The procurement process means that procurement teams try to obtain the goods and services that a company demands for its daily operations and manufacturing process. Recordkeeping is also an important part of the procurement process, since this is vital for the invoice management. There are different types of procurement, namely direct and indirect procurement.
Direct procurement means the act of obtaining goods and services that directly contribute to the manufacturing or production process of a company’s end products. For instance, raw materials and other resources are turned into the final product and are therefore part of the direct procurement process.
In contrast, indirect procurement includes all the goods and services that do not directly relate to the manufacturing of the end product, but do help making the process significantly more efficient. Examples of components of the indirect procurement are office supplies, furniture and maintenance equipment.
Increased efficiency
Outsourcing the procurement process allows for the company itself to focus on more essential affairs, while specialists will work for the company to search for the most appropriate suppliers and negotiate the prices and terms with those suppliers. In this way, the company no longer needs to worry about the continuation of the entire procurement process, as the responsibility lies in the hands of another, more knowledged and experienced, party.
Reducing costs
Since the procurement process can be very complex to manage, it can quickly become expensive. However, when a company decides to outsource the procurement process, a specialist department will be completely focused on managing this complex process. This will eventually lead to lower costs as you will no longer need to allocate office space to the management of the procurement process. Furthermore, you will be giving your employees the possibility to focus on other tasks that may require more effort.
Access to more and potentially better resources
Hiring a third party to manage the procurement process for your organization also gives you accessibility to the entire network related to that third party. This will lead to a greater number of suppliers from which you can choose. Moreover, the purpose of the third party is to leverage the most profitable deal for your company.
Higher adaptation abilities
It is essential to be able to adapt quickly in the modern business world as the environment is continuously changing with many new developments and trends arising from time to time. Outsourcing the procurement process will bring the benefit of an agile procurement function which acknowledges and responses quickly to any changes in the prices and supply availability. The team that you hire to manage the procurement process will be specialized in keeping track of any changes in the business environment that might impact the procurement process in some way. This gives you, as a business, the opportunity to perform better as a whole.
