When determining a procurement strategy businesses typically ask themselves a few key questions. Should we centralise or decentralise? Is it better to outsource or in-source? Do the benefits of near-shore outweigh those of far-shore?
Organisations looking to centralise are often looking to gain power by controlling spend across divisions and taking control of the contracts and suppliers the organisations uses. By taking control of spending companies hope to drive savings through establishing consistent business processes. However, in reality this approach often leads to dissatisfied internal customers who feel they cannot control what matters to them.
De-centralising the procurement function can also be problematic. When non-experts are charged with making purchasing decisions this can lead to increased, uncontrolled spend that is hard to account for.
However, with the advent of cloud-based e procurement systems, companies can have the best of both worlds. E procurement platforms can help organisations to have all the benefits of centralised procurement policy with the advantage of local purchasing power.
E sourcing can help companies:
- control what matters
- establish consistent processes with an approval chain
- enforce utilising recommended suppliers
- control employee spend through allowing users to establish spending thresholds
- let internal stakeholders manage what matters to them
- access complete real-time data from right across the supply chain, globally and locally
Outsource or in-source?
E sourcing can also help companies deal with the question of whether to outsource or in-source certain business processes and functions. E procurement systems can provide the means to automate the process based on pre-defined rules, set centrally by knowledgeable experts. Through utilising this approach organisations realize savings and see improvements in quality and service.
For example, Claritum’s e procurement system can automate the process of routing orders to internal production facilities or out to external vendors based on turn-around time, production requirements, deadline, price, quantity and a host of other criteria. Additionally, pricing can be set with specific break-points, so different quantities or optional requirements can dictate the optimum production facility. Whether internally or externally produced, every order trail is auditable, with appropriate approval limits and service level response times tracked easily.
Near shore or far-shore?
Companies may choose to outsource their operations to onshore, offshore, or near shore locations and must make a decision after comparing all of the benefits of cost savings, speed, quality and expertise against any potential problems.
Far-shore outsourcing, outsourcing business processes to a faraway country such as India or China, may offer the greatest cost saving benefits but problems include communication problems caused by cultural and time differences. Onshore outsourcing, locating business operations of the company to another company in the same country or region, offers less cost savings but has the advantage of better communication through face to face contact and better quality results. Near shore outsourcing, which involves outsourcing operations of the company to a nearby country that has a similar culture and skills, offers some cost savings benefits over onshore whilst avoiding some of the problems of offshore outsourcing.
Technology can help overcome some of the problems of communication caused by outsourcing. Cloud based e procurement systems can help by enabling companies to set up standard vocabularies for business processes. Additionally, data is updated in real time, meaning reporting can be retrieved in real time from anywhere in the world and on an increasing number of devices. This has the effect of enabling global collaboration between individuals anywhere in the world.
We believe that technology is changing the way organisations view outsourcing. Cloud based e procurement systems enable procurement to control cost centrally but also allow for a degree of regional control making sure that all the parties involved get the best of both worlds.