Procurement BPO transfers procurement tasks to a third-party company, allowing for cost savings and increased productivity. BPO providers assume responsibility for the entire department or a key component of the procurement process, managing ongoing supplier relationships and evaluating performance. This outsourcing trend is growing due to advances in technology and access to lower-wage job markets.
Procurement business process outsourcing (BPO) transfers all or some of the tasks associated with verifying, securing, and managing the suppliers that provide the raw materials needed to manufacture a company’s products to a third-party company. Companies that outsource their procurement departments hope to realize cost savings and increased productivity by hiring functional specialists to manage the tasks normally performed by employees and by reallocating corporate resources into core operations. Consulting firms that offer procurement BPO take primary responsibility for the department and market on behalf of the client company.
Outsourcing has reached new levels of popularity because advances in technology and access to the Internet have opened up job markets in countries with wage thresholds much lower than mature job markets, such as in the US and UK. Companies are constantly experimenting with new types of outsourcing projects in an effort to save money. BPO procurement is a growth of this popularity in outsourcing and transferring control of an important operational process to an outside company.
In an ordinary business, the internal purchasing department consists of sourcing and purchasing agents, relationship managers, cost analysts, and other employees who are responsible for interacting with external suppliers who supply the components used by the business to make its products. This department functions as an integral part of business operations, but is not involved in the direct manufacturing of products or the provision of services. When business managers look for ways to increase efficiency and reduce costs, procurement is often seen as an appropriate area for outsourcing due to its administrative nature.
BPO procurement specialists assume responsibility for the entire department or a key component of the procurement process. The scope of front end work typically includes determining the best place to obtain the necessary raw materials, evaluating potential suppliers, making an informed choice of the best supplier for the job, negotiating prices, and awarding contracts. On the back end, the BPO consultant manages ongoing supplier relationships and develops a system for evaluating performance.
There are a number of technology companies that offer software solutions for procurement process management. While in some cases procurement activities are transferred to the technology company through software system integration, this is not considered procurement BPO. Outsourcing transfers complete responsibility for a business process to a third company. The BPO provider has operational control over the outsourced department’s work product and acts as an agent of the client’s business. This relationship is much broader than exists through the implementation of a software solution.
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