How Is Procurement Outsourcing Helping Modern Businesses Drive Operational Excellence?

Highlights:

• Introduction to procurement outsourcing
• Factors increasing the demand for procurement outsourcing
• Gen AI in transforming procurement activities
• Notable acquisition by top players in the domain

Procurement outsourcing involves transferring specific procurement activities, such as sourcing, supplier management, and transaction management to a third-party service provider. This modern business-boosting methodology has experienced a significant rise in the past decade due to widespread supplier selection, contract negotiation, and specification management. Many leading providers of these activities believe that these techniques have provided a wide range of benefits to customers globally.

A brief on procurement outsourcing

Procurement outsourcing refers to the collaboration with a third-party service provider to manage purchasing activities, either partially or fully, for a business. This strategic approach enables organizations to save time, reduce costs, and allow them to concentrate on their core competencies. This further leads to increased revenue and enhanced operational efficiency.

Nowadays, modern businesses enhance their resources by delegating some or all procurement tasks, such as sourcing goods and services to external experts. This transition allows internal teams to focus more on strategic initiatives that drive growth, rather than getting involved in procurement processes. Outsourcing boosts productivity by freeing up time for companies to focus on their core business activities instead of procurement.

Reasons why businesses outsource procurement activities

Outsourcing procurement to BPO firms provides companies with expert guidance on processes and policy compliance. This collaboration enables businesses to enhance their efficiency and overall performance, resulting in measurable cost reductions and significant savings. While cost-cutting is often the primary motive for outsourcing, there are additional advantages, such as freeing up in-house resources to focus on core business processes.

Moreover, companies outsource less critical processes and expenses that don't directly impact the production of final goods. The category typically includes marketing, IT, telecommunications, logistics, transportation, general and professional services, maintenance, repair and operations, travel, and packaging.

In addition, indirect spending holds approximately 20% to 40% of a company's total revenue. However, this area often lacks adequate support from internal procurement departments due to the challenges and costs associated with developing in-house expertise.

The impact of Gen-AI on procurement outsourcing

With the rapid integration of modern technologies into various sectors, many leading businesses believe that Gen-AI has the potential to transform procurement activities more effectively. It automates 50% to 80% of procurement tasks, releasing time and resources for organizations to negotiate more effectively and reduce costs. This technology enhances supplier relationship management, streamlines interactions, and provides deep insights into sourcing strategies.

With the expanding capabilities of procurement, Gen-AI is expected to play a key role in influencing decision-making across organizations and supporting them with a broader range of activities. Furthermore, this technology has brought innovations to the sector by providing insights into market trends and facilitating faster onboarding of suppliers with advanced capabilities. Such promising advancements are expected to drive the growth of the procurement outsourcing market in the coming period.

Accenture’s strategic acquisition of Insight Sourcing to enhance procurement capabilities

In February 2024, Accenture, a global multinational professional services company joined forces with Insight Sourcing, a leading provider of strategic sourcing and procurement services. Through this acquisition, Insight Sourcing expands Accenture’s sourcing and procurement services for private equity companies and other industries, including consumer goods, technology, retail, and industrial sectors. Insight Sourcing potentially helps its clients optimize costs while sourcing and negotiating contracts for direct materials such as electronics, food ingredients, and clinical services. The firm also helps them enhance costs for indirect materials like IT, packaging, logistics, and marketing, services related to capital expenditure, and energy procurement management.

With this acquisition, the firm is expected to strengthen Accenture’s expertise in cost takeout strategy driven by category and supplier market intelligence. Insight Sourcing has added around 200 plus consultants to Accenture for its supply chain & operations functions. In addition, 40 technology procurement tools of Insight Sourcing have helped Accenture’s clients capture value faster. According to Rob Fuhrmann, global lead for sourcing and procurement at Accenture, this acquisition has helped the company become a leading provider in sourcing and procurement advisory and execution services for corporate and private equity clients.

Endnote

Procurement outsourcing has emerged as a strategic approach for today’s businesses that has helped them enhance their operational efficiency, reduce costs, and utilize specialized expertise. Moreover, the rising adoption of new IT solutions and the growing demand for simplified procurement processes are expected to open new avenues for the sector in forthcoming years.

To obtain more insights into the expanding landscape of the procurement outsourcing industry, contact our esteemed analysts here!

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