Purchasing BPO involves outsourcing tasks related to managing suppliers and raw materials to a third-party company, with the aim of cost savings and increased productivity. Procurement BPO providers handle the entire department or a key component of the procurement process, including vendor evaluation and contract negotiation. This is different from software solutions that only assist with managing the purchasing process.
Purchasing business process outsourcing (BPO) offloads all or some of the tasks associated with verifying, securing, and managing the suppliers that supply the raw materials needed to manufacture a company’s products to a third-party company. Companies that outsource their purchasing departments hope to realize cost savings and increased productivity by hiring functional specialists to handle tasks normally performed by employees and reallocating business resources to core operations. Consulting firms offering procurement BPO assume primary responsibility for the department and operate in the marketplace on behalf of the client’s company.
Outsourcing has reached new heights of popularity as technological advances and Internet access have opened up labor markets in countries with much lower salary thresholds than in mature labor markets such as the US and UK. Companies are constantly experimenting with new types of outsourcing projects in an effort to save money. Purchasing BPO is a consequence of this popularity of outsourcing and transfers control of an important operational process to an external company.
In a typical company, the internal purchasing department is made up of purchasing and sourcing agents, relationship managers, cost analysts, and other employees who are responsible for interacting with external suppliers who supply the components the company uses to make its products. This department functions as an integral part of business operations, but is not involved in the direct manufacture of products or the provision of services. When business managers are looking for ways to increase efficiency and reduce costs, purchasing is often seen as an appropriate area to outsource due to its administrative nature.
Companies specializing in procurement BPO take responsibility for the entire department or a key component of the procurement process. The scope of work on the front end typically includes determining the best location to source the required raw materials, evaluating potential suppliers, making an informed choice on the best supplier for the job, negotiating prices and awarding contracts. On the back end, the BPO consultant handles the ongoing relationship with vendors and develops a system for evaluating performance.
There are several technology companies that offer software solutions to help manage the purchasing process. Although in some cases purchasing tasks are transferred to the technology company through software system integration, this is not considered purchasing BPO. Outsourcing transfers complete responsibility for a business process to a third party. The BPO provider has operational control over the outsourced department’s work product and functions as an agent for the client’s company. This relationship is much more extensive than what exists through the implementation of a software solution.
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