With the recessionary winds flowing across the globe and the growing need to rationalize spends while sustaining optimum levels of productivity, enterprises big and small will leverage e-Procurement model to attain greater savings and deliver enhanced value. The demand for e-Procurement processes is growing.
Outsourcing the e-Procurement process not only complements an organization’s drive toward cost reduction but also scales down the operational executions to a minimum level.
Enterprises are increasingly outsourcing their procurement functions to a growing number of third-party organizations known as procurement service providers. Given the current market condition, the procurement outsourcing industry will continue to grow across geographies, industries and organization sizes.
According to a recently launched study titled Shifting buyer Preferences Dictate New Engagement Models conducted by Everest Research Group, overall spending on Procurement outsourcing (PO) in 2008 increased by 30 percent.
Organizations typically resort to outsourcing their procurement, e-Procurement or otherwise, when their needs are catered to by service providers minus the infrastructural costs involved in manufacturing as well as the operational and logistical overheads while availing the benefits of consolidated purchases, pricing discounts and reduced purchasing errors.
An IT-enabled organization would initiate outsourcing their procurement process when the organizational needs rise to such proportions that their current infrastructure is stretched beyond the available bandwidth. This would be true for a scenario, wherein the organization increases the variety of goods and services being offered based on market demands. An inefficient procurement process, which results in delays or throws up huge errors, could also fuel an organization’s need to outsource its procurement.
For e-Procurement to be outsourced, the key factors considered by an organization while finalizing the service provider are the availability of products inventory, logistical efficiency, discount policies and order consolidation options. This is based on an organization’s inclination to depend more on their own IT systems and their system’s interactions with the procurement service providers.
An IT-enabled organization would usually engage with its service provider based on the provider’s ability to fulfill the demand forecasts, follow standard eBusiness processes, and agree to the organization’s terms and conditions for procurement. The terms and conditions would normally touch upon key service levels such as time taken to accept orders, ability to absorb changes to orders, rejection process, invoicing and payment options, delivery timeline adherence and tracking abilities.
How Does Outsourcing in e-Procurement Work?
At a high level, with respect to outsourcing, an e-Procurement system would generally translate the complete or part of an order received into a purchase order for its procurement service provider, associated with the line of products/services included in the order, passing on all the order information. The end-user is either made aware of the possible delivery time range (for example two to three weeks) or given an open time range until the order is confirmed and payment transactions are initiated, if not completed. As per the terms and conditions decided earlier, the provider might buy some time to consolidate similar orders based on various factors like items in the order, delivery locations, fulfillment dates or might immediately manage it’s inventory to build and deliver the order items with the required delivery date range. The packing slip on the items prior to delivery reflects the original organization’s details and not the provider. Once the order items are ready for delivery to the customer, the procurement service provider collaborates with its logistics provider to initiate and complete the delivery to the end-user.