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  • Procurement - Inhouse or Outsource

    Is procurement a strategic part of business, or a cost centre that can be outsourced?

    If the task of procurement is to only manage the purchase to pay cycle, with a bit of cost management thrown in, then I propose it is non-strategic and should/could be outsourced.

    For procurement to be, and to be seen to be strategic to the company, it should be actively involved in all aspects of the supply chain, from planning of plant and products through to the disposal.

    Procurement has to sell itself to the organisation, and deliver value in the same way a vendor has to sell itself to you.

    Comments please!
    Last edited by David; 09-19-2006, 11:09 AM.
    David van der Walt

  • #2
    Re: Procurement - Inhouse or Outsource

    Yes, procurement is strategic. However before anything else is done in an organisation, Procurement must have policies and procedures that gets the buy-in of top management. Procurement has always been seen as a non-value add unit of any business. It is the reposnsibility of the procurement professionals to change that perception. How can that be done?

    1. Firstly getting buy-in from top management and the entire organisation;
    2. Change organisations perception of procurement;
    3. Have clear policies and procedures;
    4. Workshop the organisation on policies & procedures;
    5. Monitoring compliance of policies & procedures;

    Procure through cross-functional teams & have teams accountable. Therefore organisation will see the value add that Procurement contributes to the bottom line.

    Comment


    • #3
      Re: Procurement - Inhouse or Outsource

      Good points made by Lance.

      However, if the organisation has not viewed procurement as strategic up to now, it is very unlikely to start doing so tomorrow.

      So, like The Beasty Boys sang : You have to fight ...for the right ...to party. And like my previous sales director use to say " Pick the fights you can win"!

      Picking the fights you can win require that you have relevant information about your targer and the skill and knowledge to use this information to build a business case for procurement.

      This business case is the plan that what will win the battle for procurement.

      When planning a potential sale (in this case we sold high end supply chain solutions) we followed the following steps:
      1) Targeting
      2) Initial calls and qualification
      3) Executive sponsor development
      4) Value assessment and presentation
      5) Negotiate and close
      6) Account expansion

      Seeing that procurement has to sell themselves to the organisation (procurement's clients) it make sence to follow a proven sales strategy.

      So, even though you know who the client is (or not?), the steps are valid. Over the next few weeks I will be posting how I see this process can support procurement is selling themselves to the organisation, and sharing in the reward of a job wel done.

      Next week we will look at targeting and initial calls and make this applicable to building a world class procurement organisation.

      a) Identifying your in-house clients
      b) Identifying the key stakeholders
      c) High level value assessment
      d) High level value presentation


      Regards
      David van der Walt

      Comment


      • #4
        Re: Procurement - Inhouse or Outsource

        Some very good and valid points made by David and Lance.

        Have to agree here, definately strategic and I think it has alot to do with the industry you are in as well, whether outsourcing it is an option or not.
        Izak van der Merwe
        INTENDA (PTY) Ltd.
        www.intenda.co.za

        Comment


        • #5
          Re: Procurement - Inhouse or Outsource

          From Purchasing Index's perspective outsource Procurement is on the increase, particularly in the UK. In RSA most of our clients are understaffed (and underskilled) to handle all the myriad spend categories that they are taking on as their remit broadens and deepens in their organization. Surely it may be opportune to look into using outsourced skills to handle the "rats and mice", especially if you have a good handle on these spend types.

          Comment


          • #6
            Re: Procurement - Inhouse or Outsource

            .. when we refer to "outsourcing" we should, in order to clarify better, rather refer to it as out-tasking i.e. certain procurement processes. I do not think that any corporate in SA is ready to outsource it's entire procurement function (at this stage)
            Jacques Fourie
            Director Operations
            Wanama Solutions
            +27836450618
            www.wanama.co.za
            jacques.fourie@wanama.co.za

            Comment


            • #7
              Re: Procurement - Inhouse or Outsource

              Could you elaborate on that Jacques as I personally think that they are
              Also what services do you provide as you web page is not yet up and running...
              Izak van der Merwe
              INTENDA (PTY) Ltd.
              www.intenda.co.za

              Comment


              • #8
                Re: Procurement - Inhouse or Outsource

                Have to agree with you on that one Jacques. I have seen organisations mostly outsource certain spend categories, but not the whole function, at least not in South Africa. The problem is that most firms dont have detailed spend information across their organisation. When a firm does not have this detailed information outsourcing is premature as in essence you are making a decision based on something you have no knowledge on. This will make it difficult if not impossible to qualify the decision to outsource and further to this being able to validate "savings" from outsourcing simply wont be possible, as you wont have the necessary benchmark data, that is accurate data on the state prior to outsourcing. Most firms dont even have a handle on their contracts (had to drop that one in for you) so having a complete and accurate picture on procurement, its activities and all its spend is a pipe dream still for most.

                Comment


                • #9
                  Re: Procurement - Inhouse or Outsource

                  Originally posted by Izak View Post
                  Could you elaborate on that Jacques as I personally think that they are
                  Also what services do you provide as you web page is not yet up and running...
                  Hi Izak: the site is done and will be relaunced today: here is the active link to the website:
                  http://www.saoapps.com/wanama%20solutions
                  Jacques Fourie
                  Director Operations
                  Wanama Solutions
                  +27836450618
                  www.wanama.co.za
                  jacques.fourie@wanama.co.za

                  Comment


                  • #10
                    Re: Procurement - Inhouse or Outsource

                    Thanks Jacques, will go and check it out.
                    Izak van der Merwe
                    INTENDA (PTY) Ltd.
                    www.intenda.co.za

                    Comment


                    • #11
                      Re: Procurement - Inhouse or Outsource

                      Originally posted by Izak View Post
                      Could you elaborate on that Jacques as I personally think that they are
                      Also what services do you provide as you web page is not yet up and running...
                      Izak, I come from the corporate environment. If someone had to come to me then and proposed an outsourced procurement solution - I would have guided him to the door as I knew what the company board would have said if such a proposal was tabled.

                      I have subsequintly worked around this by actually "out tasking" - as Gregg said - various element of procurement activities.

                      By the way Gegg - fancy meeting you here !
                      Jacques Fourie
                      Director Operations
                      Wanama Solutions
                      +27836450618
                      www.wanama.co.za
                      jacques.fourie@wanama.co.za

                      Comment


                      • #12
                        Re: Procurement - Inhouse or Outsource

                        Procurement BPO not widely used in Australia
                        The adoption of procurement business outsourcing is
                        not widespread in Australia but rather is still discrete
                        in nature and will remain so over the next couple of
                        years, according to surveys by IDC.
                        "Although IDC has observed a strong interest in
                        outsourcing procurement activities, especially within
                        the sourcing sub-segment, it is primarily within the
                        500-plus employee companies. Even within this
                        market segment, there are still small-scale
                        engagements and the overriding driver remains cost
                        management," said Aprajita Sharma, IDC's research
                        manager for outsourcing and BPO services
                        IDC estimates that the Australian procurement
                        business services market will increase at a four-year
                        compound annual growth rate (CAGR) of 18 per cent
                        to approximately $A534 million by 2011.
                        "The market is not ready for comprehensive
                        procurement BPO. However, it is still important to
                        consider the smaller scale engagements as BPO
                        deals increase over time in scope and complexity,
                        these smaller engagements allow firms to gain a
                        foothold within the marketplace," Sharma said.
                        "It is also critical to identify relevant trigger events
                        for procurement BPO adoption, for example F&A
                        outsourcing could be a lead-in for procurement BPO
                        as some large customers look at cross-functional
                        integration of the accounts payables and accounts
                        receivables," she added.

                        Comment


                        • #13
                          Re: Procurement - Inhouse or Outsource

                          Procurement Outsourcing

                          In a thoughtful article, former IACCM Chairman Bill Huber reflects on the question of Procurement outsourcing. Too strategic? Insufficient ROI? A waste of past investments? Or is it simply that organizations lack the vision and leadership to unleash the benefits that outsourcing could bring?

                          Read

                          Comment


                          • #14
                            Re: Procurement - Inhouse or Outsource

                            I agree with the theory as well as the benefits - but reality check says at least another 5-8 years for SA to come around. However, as procurement becomes more strategic the lesser chance it has of being outsourced.
                            Jacques Fourie
                            Director Operations
                            Wanama Solutions
                            +27836450618
                            www.wanama.co.za
                            jacques.fourie@wanama.co.za

                            Comment

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