Articles by Albert Einstein Outsourcing What Procurement Areas Should Be Outsourced
7%-38%-55% Communications MythBy Robert P.
Top 10 Big Mistakes Of Big BusinessBy Francis T.
Climate Change Is Real! Act Now!By Kathrin G.
Improving The Quality Of Decision MakingBy Niladri R.
Knowledge Management And CreativityBy David G.
Top 10 Big Mistakes Of Big BusinessBy Francis T.
Best Practice Benchmarking - The Path To ExcellenceBy Robert C C.
What Is A Healthy Company?By Raymond H.
Challenges And Opportunities In The New EconomyBy Alkistis A.
Managing Bad Debt - Importance Of Good Collection SkillsBy GERARD A.
Also Interesting ...
Insight Into Hard Work & Smart WorkBy Shabbar S.
Collaborate Today And Compete Tomorrow?By Frank D B.
The Contract You Did Not SignBy Barry C.
Employees Want Simple Things In LifeBy Sid R.
Do You Brighten A Room When You Walk In - Or When You Leave?By Roy S.
What Procurement Areas Should Be Outsourced
Few companies have the skills to effectively manage procurement across all spending categories. Smart enterprises should examine their procure-ment strategies to identify the underperforming processes and categories that could benefit from outsourced procurement solutions.
As a result, underperforming procurement operations and underleveraged spending are causing enterprises to leave billions of dollars on the table. In response, many companies are now considering outsourcing underperforming procurement processes and spend categories to procurement service providers (PSPs). How can an enterprise determine which procurement activities to outsource?
To evaluate what areas of an enterprise's procurement should be outsourced, Aberdeen Group recommends using two key matrices. One matrix should evaluate the strategic value and spend "control" of the purchase category. The other matrix should assess whether an enterprise has the human intelligence and infrastructure necessary to manage a particular category of spending.
The relative strategic value of a spend category is largely determined by the impact it has on the successful manufacture, delivery, and differentiation of a product or service. The strategic value of a spending category is further defined by the uniqueness and availability of that good or service in the marketplace.
For example, Intel's Pentium 4 microprocessor has a high strategic value for a PC manufacturer because the speed of a Pentium chip is highly competitive in the market. However, dynamic random-access memory (DRAM), a potentially large portion of spending, may have lower strategic value for the manufacturer because it is currently in surplus.
But do not take that to mean that any product of lesser strategic value should be outsourced. In the above example, the PC manufacturer may still consider outsourcing procurement of both the Intel chip and DRAM if the outsourcer has a better relationship and can arrange better terms with the supplier.
Most companies have developed methods for managing most strategic purchases. Therefore, it is unlikely that these companies would wholly outsource strategic procurement activities. However, many companies are augmenting internal competencies with infrastructure and services provided by outside service providers. In these scenarios, the outsourcers provide supply market intelligence, sourcing strategy, vendor qualification, or online "market-making" capabilities.
Spend control is determined by examining the total spend of a particular category
and how well that spend is "leveraged" across the enterprise. A company's ability to leverage spend is determined by how much of total enterprise spending in one category is done under contract and how many suppliers are used to satisfy that category. When spending is done without a contract and many suppliers are used to satisfy the need, an enterprise is usually showing signs of poor spend control.
Enterprises must evaluate their expertise and their capacity to manage a particular category of spending. One way this can be done is by categorizing spending and reviewing how the internal resources are dedicated to each category. Enterprises can then balance the amount of resources against the total company wide spending for that category.
Additionally, companies should examine the procedures in place to renew contracts
for each category of spend and how often these contracts have to be renewed. They should also examine the sourcing practices used for consistency and sophistication (e.g., if category managers are using "three-bids-and-a-cloud-of-dust" tactics to renew contracts, additional expertise is required).
The value of existing procurement infrastructure can be measured by understanding the ratio between the costs of an item and the transaction costs associated with the purchase of that item. For example, capital equipment - such as manufacturing equipment - typically has high-dollar value, but relatively low transaction costs when compared against the total cost of the product. On the other hand, low-dollar, high volume purchases, such as indirect goods, have high transaction costs relative to the value of goods purchased.
High transaction cost ratios make the procurement of indirect goods ideal candidates for automation as well as outsourcing. Enterprises that have adopted e-procurement have been able to reduce prices paid, improve contract compliance, and improve process cycles and costs for indirect goods purchased.
It is important to note that outsourcing can be used to extend the value of stalled technology investments. In fact, several early adopters of procurement automation technologies have reported that PSP's have delivered requisite sourcing, supplier enablement, and process extension capabilities to improve the returns of their initial technology investments.
Smart enterprises should examine their procurement strategies to identify the underperforming processes and categories that could benefit from outsourced procurement solutions. Enterprises using PSPs have been able to streamline their procurement organization, resulting in very recognizable benefits. Chief benefits that enterprises have derived from outsourcing procurement include reducing costs, improving processes and expertise, and enhancing their focus on core competencies.
This Article is authored / contributed by ▸ Albert Einstein who travels from Ulm, Germany. Albert is available for Professional Training Work both Virtually and In-Person. ▸ Enquire Now.
What's your opinion?
54 more Articles by Albert
Speakers Don't Always Have To Be Famous6 min. Plenty are the professionals who are on the "front lines" of the industry, knowledgeable of the countless changes, and who are willing and able to speak ...
The Next Generation Of In-House Software Development17 min. How leading-edge companies are streamlining applications development.
Beyond Oil: Reappraising The Gulf States15 min. Further reform will be essential if one of the world?s fastest-growing regions is to seize a broader role in the global economy
A Good Look At Corporate Social Responsibility31 min. There appears to be plenty of room for much greater effort and involvement by companies and organizations around the world. Here a few thoughts and pointers.
Managing Your Organization By The Evidence17 min. An organization is much more likely to improve its current performance and underlying health by using a combination of complementary practices rather than ...
Move Over, Baby Boomers8 min. Gen X-ers want far more collaboration with companies - both as customers and as employees. CIOs are uniquely positioned to help their enterprises meet ...
A Guide For The Ceo-Elect13 min. The days, weeks, or months between taking the job and assuming power are precious. Put them to good use.
15 Seconds On The Web: Ten Writing Tips To Improve Sales7 min. In 15 seconds, a visitor to your site determines whether or not they are interested in your product or service. Web usability experts can provide all sorts ...
How Executives Grow13 min. Talent can be bought, but the best companies develop their own.
Succession Planning: Often Requested, Rarely Delivered28 min. Surprisingly, many organizations lack a proper succession plan. One reason is that they do not have an effective succession planning process. This author ...
The Hacker's Code Of Ethics!4 min. Recently, I came across a code of ethics for hackers (yes, it really does exist) that I'd like to share with you, because I think it really hits home with ...
Who Knows Whom, And Who Knows What?13 min. Employees' personal connections can be as valuable as their individual knowledge base. Social network analysis, or SNA, helps maximize a company's collective smarts.
7 Ways To Stop Selling - And To Start Building Relationships!7 min. Sometimes we can all use a friendly reminder to keep us from backsliding into old ways of thinking about selling that lead us down the wrong path with potential clients.
Organic SEO Or Pay-Per-Click Advertising - Which Should You Choose?8 min. Organic search engine optimization has some distinct advantages over pay-per-click advertising. However, there are undoubtedly certain situations and scenarios ...
Project Success And Failure20 min. What is success, what is failure, and how can you improve your odds for success?
Sales Person Or Customer Advocate - Who Do You Need To Be?10 min. To get beyond survival and to grow both profits and margins, the successful companies of the future will be forced to become true customer experts.
Strategy Session: What To Look For When Hiring A Professional Speaker4 min. How do you know if the speaker fits? How do you avoid embarrassing mismatches?
Corporate Transformation Without A Crisis19 min. The art of leading deep corporate change can be learned. The trick is to help each member of the company discover a new reality...
Enterprise Risk Management - Risk's Rewards21 min. Are you on board with enterprise risk management? You had better be. It's the future of how businesses will be run.
How Gulf Companies Can Build Global Businesses8 min. Companies based in the GCC states are using their petrodollars to expand into global markets. But in the long run, these companies will have to develop distinctive capabilities and skills.
Getting Labor Policy To Work In The Gulf16 min. For GCC states, liberalizing the labor market and developing the local workforce are the keys to moving beyond a reliance on foreign workers.
The Top Ten Things Customers Want3 min. Over the last two years of working with hundreds of clients from all walks of life, I have noticed trends of what my clients want and need. This top ten ...
Finding Facilitators That Fit!3 min. The aim of this guide is to prepare you for discussions with a bureau, and to get you thinking about all the factors that affect your Facilitator choice.
Better Operational-Risk Management For Banks15 min. Operational risks are costly, but they can be conquered when high-ranking executives join the battle.
Games Managers Should Play9 min. The success of strategic investments depends largely on the subsequent moves of competitors. Uncertainty about competitive conduct can lead executives ...
Strength Inspite Of Size11 min. Growth is necessary, but size is no guarantee of a successful future! Nevertheless, growth is needed. Without growth there is no life. In a certain sense, ...
What IT Leaders Do12 min. Companies that rely on IT governance systems alone will come up short.
TRIZ As A Lean Thinking Tool11 min. Lean Thinking is a highly evolved method of managing an organization to improve the productivity, efficiency and quality of its products or services. The ...
Foresee The Future8 min. Foresee the future, that's what your customers expect, that's what you need to deliver.
Living With The Limitations Of Success6 min. Once companies reach a certain size, setting realistic performance aspirations gets a bit trickier.
The War For Talent4 min. US Recruiting, Retaining & Developing Talent Statistics & Best Practises
Dwindling Readership: Are Tabloids The Answer?14 min. Newspapers have tried a host of measures to halt the long-term decline in their readership, but they haven't stopped consumers from turning to TV and the ...
So This Is What Communication Can Do?13 min. Everything that we do for our clients is based on the idea that improved communications will improve an organisation's performance and contribute to the ...
Tracking The Growth Of India's Middle Class17 min. Over the next two decades, the country's middle class will grow from about 5 percent of the population to more than 40 percent and create the world's fifth-largest consumer market.
Slipping Up6 min. Trying to perfect a flawless presentation can result in disaster...
Defining Customer Touchpoints5 min. Improving the customer-centricity of your organization isn't just good business, it's also good marketing.
Best Practice And Beyond: Knowledge Strategies12 min. Value created by knowledge is often not captured. Five accounts of knowledge strategies.
What Is The Business Of Business?15 min. By building social issues into strategy, big companies can recast the debate about their role in society.
A New Model For Marketing4 min. The proliferation of brands and channels is forcing companies to restructure their marketing efforts significantly.
Must Work Be Fun?5 min. Should work be fun? Must it be fun? Today, the answer to these questions is mostly yes. What else should it be? Yet however plausible this answer might ...
Eight Business Technology Trends To Watch19 min. Eight emerging trends are transforming many markets and businesses. Executives should learn to shape the outcome rather than just react to it.
Measuring Performance In Services16 min. Services are more difficult to measure and monitor than manufacturing processes are but executives can rein in variance and boost productivity - if they implement rigorous metrics.
The 'Unprofitability' Of Modern Technology13 min. Of all the findings on business strategy yielded by the study of the businesses in the PIMS? database, the following is one of the most controversial: ...
Value Talk: Getting The Most Out Of Your Speaker6 min. Valuable insights on using your speaker to maximise the success of your event
Pros & Cons Of Pay For Performance11 min. Somewhere in Corporate America, a human resources manager is tweaking her company's employee-incentive program. Maybe she's dumping last year's customized ...
Growth And Size4 min. "Size is no guarantee of future success." What is strategically important is strength not size. Speed is more important than physical mass and flexibility ...
The Parkland Way - Never Thought You Could Learn From A Hospital?18 min. Looking for inspired leadership, passionate employees, unsurpassed productivity, and grateful customers? Forget the dispirited corridors of corporate ...
Management -The Handling Of Complexity9 min. Complexity has been one of the most frequently used words for some years now. People talk about complex systems, complex interrelationships, complex problems ...
Intrapreneurship: Leveraging Organisational Talent9 min. The global talent war has seen organisational leaders scratching their heads to understand how they can attract and retain the very best talent that is ...
We Need Teamwork - But Is It The Only Useful Form Of Work?6 min. Two of today's buzzwords are Team and Teamwork. Those with a particular desire to conform to the spirit of the age portray them as the polar opposite of ...
Branding, Recruiting And Learning Through Public Speaking And Conference Attendance11 min. Reasons Why You Should Speak at and Attend Professional Seminars
The CEO's Role In Leading Transformation15 min. The CEO helps a transformation succeed by communicating its significance, modeling the desired changes, building a strong top team, and getting personally involved.
Back to top