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Procurement Pivotal in Outsourcing Process

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The following guest post is provided by Susan Avery, Editor in Chief of MyPurchasingCenter.com, a website designed to provide the essential information required by purchasing and procurement management professionals to keep their companies competitive in a dynamic global marketplace.

Procurement has always been involved in outsourcing. Even back when it was more of a tactical function, purchasing managers would play a role in coming up with a response to the “make or buy” question: Should the company manufacture the part or acquire it from a supplier?

Now, of course, procurement is strategic, and making a decision on whether to outsource manufacturing of a part, or entire product, is more complex than it was 30 years ago— and all the more reason for procurement to be involved. Procurement is a valuable member of the outsourcing team precisely because of its understanding of internal customer requirements (for cost, quality, etc.) knowledge of markets and suppliers, and access to data from third-party sources.

Playing that role and having that understanding and access to data gives procurement opportunity to shine. As part of a company’s strategic business planning process, outsourcing has the attention of the CEO and CFO as well as the board of directors and Wall St.

Stakes High for Procurement

Before we get further into this discussion on outsourcing, let’s first agree on the meaning of the word, which bloomberg.com defines as “allowing a third-party to take on a function in a company.” For our purposes, we’ll look mainly at manufacturing, but other processes can be outsourced as well, i.e., IT, HR.

Experts expect outsourcing to remain part of the strategic business planning process. A new survey by the Peerless Research Group late last year shows 84% of companies now outsource some manufacturing activity, with nearly the same number (79%) planning to continue with the activity or add to it.

That’s because benefits of outsourcing include, but are not limited to, managing cost, and can even extend to the company gaining an edge over the competition.

Yet outsourcing is not without risks. In some cases, a bad decision can lead to lost sales and even business failure.

In his book, Strategic Supply Management: Creating the Next Source of Competitive Advantage, Robert J. Trent, put together a list of factors that companies consider when outsourcing. These include a desire to reduce capital assets or avoid taking on new assets; the item or service is not core to the business; and specialized supplier capabilities provide advantages, among others.

His list of factors that support keeping manufacturing in-house includes favorable costs; lack of reliable suppliers, and item or service is core to the business.

Procurement’s value to the outsourcing team—and the company—rests on its ability to gather data to address each of these issues and others and to speak the language of engineering and quality colleagues so all can engage in an intelligent debate.

In a company with disparate data sources and systems that are not integrated, the understanding procurement is able to gain and marry to outside information is of limited value—unless it has access to tools like Tamr which provides visibility into the big picture on company spend in real time.

Clarity into the big picture also comes in handy for procurement’s other responsibilities related to outsourcing. Its job doesn’t end with assisting in the decision-making process. Procurement takes a lead in selecting the third party, negotiating the contract, and tracking supplier performance—all activities which rely on accurate realtime data drawn from disparate systems and external sources, other applications for which Tamr can be helpful.