What is Procurement Outsourcing?
Procurement is the process of purchasing goods or services from an external supplier at the best possible rate. Procurement involves a number of activities and processes that are essential for a company or an organisation to obtain necessary products or services to meet the needs of the acquirer in terms of quality, quantity and time.
Products or services that are procured may include raw materials, office supplies, technical equipment, services and supplies, furniture, printed collateral, etc.
What is procurement outsourcing?
Procurement outsourcing is the subcontracting of key procurement activities or processes related to requisition and supplier management in a company to a third party that has expertise in the required domain. It is a long term process that generally extends over 36 to 60 months. Procurement outsourcing may be done for multiple categories, such as administrative supplies and equipment, telecom, industrial supplies and equipment, IT hardware, etc.
It is an effective strategy for many companies who want to increase their organizational efficiency, improve their productivity and develop stronger relationships with suppliers, all at a reduced cost. Procurement outsourcing allows companies greater freedom and flexibility to remain focused on their core competencies. Outsourced procurement teams comprise of experienced and competent procurement professionals who can provide expert solution and support.
What are the categories of procurement outsourcing?
Procurement outsourcing activities can be broadly categorised based on the two specific segments of procurement:
Direct Procurement: Direct procurement involves the acquirement of raw materials and goods that are required for production. Generally direct procurement is done in huge quantities from suppliers at reasonable prices. As direct procurement is essential for manufacturing of goods in the company, it is related to revenue creation of the company.
Indirect Procurement: Indirect procurement involves the acquirement of goods, services or supplies that are essential for proper functioning of the day-to-day business activities. Indirect procurement includes marketing related services, HR related services, IT related services, supplies and services necessary for smooth functioning of office and management, repairing equipment, etc. It is not related to revenue creation in a company, but is essential for running the business in an effective manner.
Based on the requirement of the company, procurement outsourcing services can be obtained from a competent service provider.
Growth of procurement outsourcing market in India
According to a report by Everest Group, the procurement outsourcing market grew by 12 per cent in 2014 and increased to USD 2.2 billion. The focus of procurement outsourcing last year was on productivity improvements while maintaining cost reduction. The research said that the emphasis was on procurement that drove business outcomes. The predicted growth for the procurement outsourcing market in 2015 is between 10 to 12 per cent.
As per the report, the procurement outsourcing market has just a few top players who command almost 75 per cent of the market. These players include IBM, Accenture, Infosys, GEP, Procurian, Genpact, etc. But as the market is on an expansion spree, competition is on the rise among service providers. 2014 was witness to the reduction of average deal size in procurement outsourcing as there was an increase in the number of small value deals. With the increasing role of technology and buyers looking to maximize their savings, the scope of end-to-end contracts is on the rise this year.
Procurement specialists from India are rapidly increasing their market presence at the cost of the global players. This is a good time for procurement outsourcing players from India as the market is escalating and opening up new scopes for them. Emerging technologies and big data analytics are all impacting the procurement outsourcing market in India and helping service providers to establish themselves in their domain. It is expected that procurement outsourcing will play a crucial role in the growth of the Indian Business process outsourcing industry in the coming years.
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