Industrial Manufacturing: Outsourcing Procurement Operations to Improve Costs

In good times, companies tend to pay little attention to the procurement organization, particularly indirect spend. In tough economic times, however, companies take a closer look at how to not only achieve immediate indirect procurement spend savings, but also how to create sustained results.

Few corporate functions have evolved more dramatically than procurement. As recently as the 1970s, it was generally regarded as a clerical, reactive position—a cost center. At many companies, the exact opposite now is true: Procurement has become a strategic, proactive process that contributes as much as—or more than—other business functions to profitability, growth and competitive advantage.

In spite of this change, most industrial manufacturing companies continue to undervalue and under optimize their indirect procurement functions. They are also challenged by a host of other indirect procurement issues: acquiring the necessary procurement skills, reducing risks, improving compliance, optimizing processes, lowering transactional costs and increasing control over spend at scale.

Accenture research shows that companies that are mastering procurement to drive business value are increasingly relying on outsourcing solutions. Our research into procurement mastery finds that across the board of procurement activities—from order management to sourcing to help desk to catalog management and goods receiving—procurement masters are far more likely to engage outsourcing service providers.

In Accenture’s experience, outsourcing can produce savings of 8 to 12 percent on material purchases in the indirect space. Outsourcing can also provide people (structural) cost savings for transactional work, particularly if sourced to lower cost countries.

It can improve effectiveness as procurement outsourcing companies have talent, methods and content that can be leveraged. In addition, outsourcing of nonstrategic procurement roles allows industrial manufacturing companies to focus their best talent on the core commodities and processes.

The advice Accenture offers based on our experience in procurement outsourcing includes:

• Do not just focus on the tactical and data management aspects of procurement when considering outsourcing. There are many more strategic and value-added roles that outsourcing partners can provide.
   
• Ensure processes are redesigned prior to or during outsourcing transitioning. The best results are achieved when processes are standardized and when the process changes at the interfaces of your company and the outsourcing partners have been well thought through.
   
• Limit the number of outsourcing companies you deploy. All procurement activities are connected. Having multiple outsourcing partners creates added complexity within processes.