Procurement Service Provider – Change Agents To Maximize Profit
Procurement is the process of obtaining materials, supplies, contracts, and other necessary requirements at a reasonable and competitive price for an organization. Procurement services have gained significance because you can gain the immediate benefits of a close alignment between operational procurement and accounts payable.
A Procurement Service Provider (PSP) is a third-party organization or consultant who is engaged in supplementing the efforts of the internal procurement departments. PSPs have their own team who assist clients in strategic sourcing, benchmarking, supplier evaluation, and rationalization, implementing the best practices and negotiations.
Although business process outsourcing has raised a question mark over the need for outsourcing all or even some important parts of the procurement function, the need to reduce costs have compelled businesses to use PSPs to maximize their profit. According to a research study– Aberdeen Group Research Abstract, “You Will Outsource Procurement: Here’s Why and How” – October 16, 2002, “Enterprises utilizing PSPs have been able to improve spending coverage, reduce costs for goods and services, employ industry best practices, leverage the latest procurement technologies, and streamline source-to-pay processes – all without taking on the risks and assets required to achieve such results.”
What is the need for a Procurement Service Provider?
Most of the organizations may be lagging in domain expertise in all the categories of the spend, as it is not possible to maintain expertise on account of the difficulties and expenses involved.
A PSP can not only make a fair assessment of an organization spend but also negotiate with suppliers, suggest, and implement changes using an industry’s best practices. A PSP will only supplement the efforts of an organization’s existing procurement team in an unobtrusive manner.
By choosing to outsource the management of an Low-Cost-Sourcing (LCC ) initiative, companies can take advantage of spend consolidation and accretion, facilitate greater visibility and control over the entire LCC sourcing process, and derive benefits from the global networks of PSPs.
Considering that companies spend an enormous amount on procuring goods and services from other countries, a PSP proves beneficial in terms of maintaining a lean and thin procurement team. The emergence of strategic procurement has added value propositions to PSPs as effective market intelligence and credible procurement service providers. According to various studies, enterprises that have outsourced procurement processes have been able to achieve material cost reductions that average between 10% and 25%.
Benefits of Procurement Service Providers
In a challenging business environment engaging an effective PSP will prove beneficial in terms of maximizing profit of an organization. For this, you have to weigh the pros and cons of outsourcing some or all of your procurement processes or categories. To make the assessment more objective, a qualified third-party provider needs to be hired. Thereafter, you can outsource to the one having the best track record in the relevant categories and industries.
For better results, you need to develop a good understanding of the capabilities of PSPs and repose your faith in them. This will help you in better strategizing core skills of the internal procurement team. You can partner with external PSPs in order to complement skills of the internal team. The PSPs will integrate excellent people and technology in order to develop and execute effective, harmonized cost-saving procurement strategies so that your organization can avail the full advantage in the short and long run.