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Finding the answer requires an honest assessment of your internal capabilities vs. those of external service providers. If procurement outsourcing is right for you, there's a right way to go about it. This article is based upon the multiphase research study Outsourcing Strategically for Sustainable Competitive Advantage, conducted by the Center for Advanced Purchasing Studies (CAPSResearch), www.capsresearch.org .
Outsourcing is a widespread practice in business today -- and will continue to grow into the future. The reasons for and approaches toward outsourcing vary greatly from company to company. Some are doing so because of tactical considerations; they are outsourcing specific business functions such as accounts payable or customer service center operations to reduce costs. Others are taking a more strategic tack, including the outsourcing of sets of capital-intensive activities like manufacturing, distribution or IT, so as to grow without adding capital. Procter & Gamble took this approach when it decided to outsource manufacturing for some product lines to suppliers that had the capabilities in place to improve those products over time. Even more ambitious is the outsourcing of whole parts of the value chain to generate capital and create new options, as General Motors and Ford did by spinning off Delphi and Visteon, respectively.
This article offers perspectives on one often overlooked but potentially rewarding outsourcing option -- the outsourcing of procurement activities. This is a strategic option and, as such, needs to be thought about strategically. To guide that process, this article examines five key issues that need to be addressed when considering procurement outsourcing:
Evaluating the potential of procurement outsourcing.
Developing a prescriptive model for successful outsourcing.
Identifying good outsourcing strategy and practice.
Exploring the range of procurement outsourcing options to gain advantage for your company.
Addressing the execution issues.
The results of a major survey on procurement outsourcing conducted by the authors under the sponsorship of CAPS Research provide the basis for our discussion.
Procurement at a Turning Point?
Clearly, significant differences exist between companies in terms of how procurement organizations support strategic business and technology objectives. In some organizations, procurement is deeply involved in the strategy-setting process; in others, the role is more limited and focused mainly on transaction activities. This parallels how organizations perceive procurement in general. Many still view...