Procurement Process Outsourcing Proves Faster and Cheaper Than Hiring In-house Procurement Staff and They Can Do More Than Procurement | Article

procurement outsourcingBrian Slobodow, chief operating officer at Neways, a mid-size, multi-level sales organization, is the first to admit “I am very short-staffed. I don’t have a lot of people with broad procurement skills.”

Running lean is the company’s strategy, but it’s also helpful in coping with a weak economy. So he challenges the qualified professionals on staff “to do more than place purchase orders. Ideally, they should be spending considerable time looking for suppliers and negotiating. Because of time constraints, it’s impossible to be on the forefront of strategic sourcing,” he said.

He could hire new staff with skills that generally match his needs, but they would be a fixed cost of $75,000 to $100,000 a year per employee and he’d have to pay their benefits. Among other reasons, this is not the best option in a bad economy.

Instead he chose another option: procurement outsourcing (PO). With this strategy, he outsources parts of the procurement process to researchers at the The Smart Cube, a business research and analysis firm in India, which he says saves him approximately 50 percent of the total cost of an onshore salaried analyst.

But labor arbitrage is not where some of the most critical value is in PO. Instead, it’s the domain knowledge of The Smart Cube researchers, who know or can find out what Neways needs. Slobodow says even if he hired full-time people for this kind of work, they’d still be more limited than The Smart Cube researchers in their skills and knowledge.

In addition, The Smart Cube is flexible. The New Delhi service provider rotates its 100 or so analysts to different assignments across multiple sectors as they come in, so Neways can easily scale up and down its usage demands according to its needs.

Finding and qualifying procurement suppliers

The Smart Cube’s main activity for Neways, which sells a variety of products in the multi-level sales model of Amway and Avon, is finding and qualifying suppliers. “Say we have a supplier or a product that’s failing,” conjectures Slobodow, “and we’re on a short timeline. It’s a global supply market, and we want to be comprehensive in our search.”

The Smart Cube, he says, performs an industry assessment, issues a request for information, processes hundreds of submissions or conversations from suppliers around the world and, in some cases, conduct requests for proposals. This essentially narrows the field to the most qualified suppliers for Neways to evaluate and in a fraction of the time that it could do it alone.

For its part, Neways specs out each assignment by listing characteristics of the job and the timeframe in which The Smart Cube must complete it. Then the two companies set up a conference call between the researcher in India and Neways. From that point on, they mostly communicate just to confirm deliverables.

The researchers have graduate degrees (Masters degrees or MBAs) and conduct primary research with the suppliers’ personnel – in person, over the phone, or via e-mail in multiple languages – or secondary research like finding information on Internet sites and proprietary databases that The Smart Cube leverages.

According to Slobodow, The Smart Cube helps Neways define its supply market and develop a sourcing strategy as well as general solicitation.

But the alliance has stretched the boundaries of PO. For example, Slobodow says Neways has a Scientific Advisory Board of six scientists who advise the company on ingredient issues. One moved on. He gave The Smart Cube the specs – a dermatologist located in Japan that speaks English – and The Smart Cube came back with 20 candidates that fit the profile. “We made a decision on one,” he says.

How a PO supplier provides value

In some instances, The Smart Cube will also do more topical research. Omer Abdullah, managing director of The Smart Cube, says his staff will know if “there’s merger and acquisition activity going on in a particularly significant supply market. We do the research on what’s happened there and its impact on the dynamics of the marketplace. We then can develop a profile of a particular supplier including details of financial solvency and financial strength to present to Neways.”

What’s key to the research process, Abdullah stresses, is that “our researchers have been trained over the years to know to ask the right questions. They know the relevance of the information they gather.”

The Smart Cube offers the gamut of procurement research, including:

  • Spend analyses
  • Supply market analyses
  • RFIs
  • Analytical support for the RFP process
  • Specific research like how to structure a best-practice procurement organization

Abdullah stresses that The Smart Cube is a good match for companies that generally need better information, better leverage of their procurement teams, and better support for their decision-making processes.

Better research gets the right results

The Smart Cube has improved Neways’s effectiveness in acquiring new suppliers, which also increases its leverage and purchasing position with existing suppliers. As a result, Slobodow says Neways ends up getting better goods from suppliers at less cost with reduced cycle times. In a struggling economy, The Smart Cube is helping Neways excel at what it does best – acquiring new suppliers and getting goods from them at a lower cost.

Furthermore, he continues, “we can get processes done faster, and with The Smart Cube I can source and work on more categories of research simultaneously than I could otherwise and within budget.”

Lessons from the Outsourcing Journal:

  • With procurement outsourcing, the buyer can outsource parts of the procurement process to the supplier’s outside researchers who provide better results for less cost.
  • With PO the supplier can rotate researchers to different assignments as they come in, providing more flexibility for the buyer.
  • Outsourcing procurement allows the buyer gets processes done faster while being able to source and work on more categories of research simultaneously without exceeding its budget.

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