Guide to outsourcing procurement

What is procurement outsourcing?

In business, procurement is the strategic process of acquiring the goods and services organizations need in order to operate.

There are two prominent procurement categories. Direct procurement involves the acquisition of goods and services explicitly linked to the organization’s product, such as raw materials and manufacturing parts; indirect procurement refers to the acquisition of goods and services not directly linked to production, but are nevertheless essential for business operations. IT procurement falls into this second category.

The procurement process is underpinned by the identification of specific business needs, revealed through communication with relevant stakeholders. This then leads to extensive market research into various solutions, before eventually submitting RFPs, negotiating contracts, and finally purchasing the service.  

Procurement outsourcing is the act of handing over all stages of the procurement process to a specialist third party. Procurement outsourcing services have become increasingly popular in recent years, particularly in the SaaS market. With the average company now subscribing to 110 software applications, procurement strategy is simply becoming too difficult for internal teams to manage optimally.

There are four different types of procurement outsourcing:

• Tactical procurement outsourcing – A model that alleviates the administrative burden of procurement, focusing on tasks such as invoice management and purchase order processing.
• Strategic procurement outsourcing – A model that involves partnering with an expert procurement provider, tapping into its knowledge and expertise. Typical functions include market research, sourcing, supplier selection, and contract management.
• Category-specific procurement outsourcing – A model that targets a specific category of business, such as IT, where expert knowledge and support can be highly valuable.
• End-to-end procurement outsourcing – A model that hands over the entire procurement process to a specialist provider.

In the world of SaaS, end-to-end procurement outsourcing is now highly valued. From initial market research to the handling of software contract negotiations, outsourced procurement services can significantly reduce operational costs in line with companies’ specific needs.

The benefits of procurement outsourcing

There are several key benefits to outsourcing procurement, all of which improve competencies across the entire procurement process.

Read on for a selection of the main benefits.

Enlist expert support:

• The primary function of procurement service providers is to equip businesses with specialist support across procurement workflows.
• Procurement experts have an extensive network of contacts, which helps establish supplier relationships during the early stages of the process. With so many subscriptions to handle, outsourcing vendor management can be of huge benefit, particularly if your procurement provider is well-liked in the industry.
• In the SaaS world, IT procurement specialists naturally develop knowledge of products, integrations and business systems, serving to improve procurement functions throughout the process.

Cost savings:

• Procurement outsourcing providers aggregate demand and sales data from multiple customers to secure leverage during negotiations. Already experts in negotiation, external procurement teams are armed with transparent purchase order histories to help secure lower pricing.
• Procurement providers also take stock of existing tech stacks to look for subscription overlapping and opportunities for volume leveraging. Greater visibility here leads to more strategic sourcing, using economies of scale to make high-volume purchasing decisions and reduce costs.

Time savings:

• Many businesses are simply too busy to effectively manage procurement demands — maintaining levels of expertise requires education, training, and time.
• A lack of investment in procurement operations will eventually cause purchasing functions to suffer, but procurement providers understand the detail behind the latest procurement solutions, saving your business valuable time.  

Optimization:

• Procurement service providers establish the metrics and KPIs through which a subscription’s success can be measured, as agreed by all parties during negotiations.
• Providers have access to platforms that can track results and performance across your SaaS portfolio, making reporting at scale much simpler. These reports make suggestions on how to improve the service — such as which platform features are needed and which are superfluous — in order to drive optimization.
• One of the biggest challenges in SaaS procurement is staying on top of contract management and scorecard dates. Optimization platforms use automations to alert users to these key dates, giving them plenty of time to prepare for any future discussions.
• The optimization of your SaaS products can be outsourced as part of your agreement with your procurement provider.

The challenges of procurement outsourcing

Similarly, here are three common challenges of procurement outsourcing.

Procurement providers don’t know your business:

• Although providers are experts in procurement, they’re not experts in your business or industry. It’s likely that you’ll have to take the time to bring outsourced teams up to speed. As a result, you may feel you’d achieve more by investing in your internal procurement department, where the team already understands business objectives.
• Procurement providers are often stretched thin, managing many clients and contracts — this may lead to feelings of neglect.

Supplier management:

• Switching from an internal model to outsourced procurement is a transition that must be managed, relying on internal resources.
• For procurement activities to remain at a high level, your relationship with your provider must be managed in order for it to remain mutually beneficial.

Relinquishing organizational control:

• Transferring a core business function into the hands of a third party can be a challenging step, particularly when IT is involved.
• Ensure you have assurances over risk management, especially when it relates to security threats and data compliance.

Procurement outsourcing best practices

For profitability and sustainability purposes, we recommend adhering to the following best practices of procurement outsourcing.

1. Develop a clear strategy -The first step in any procurement process is to establish the products or services your business needs to streamline its operations. Open up a dialog with relevant departments and teams in your organization to better understand what those needs are. If your provider of outsourced procurement services doesn’t know exactly what you want, the job won’t be done satisfactorily.
2. Communication – Communicate with your provider as much as possible — to share direction of strategy and to keep them updated on any changing business needs. Clear communication will also facilitate a healthy relationship with your procurement provider.
3. Spend management – Establish a budget for procurement operations and stick to it. While your procurement provider may suggest changes to the budget based on expertise and market knowledge, it’s important that they have clear spending parameters within which to work.  
4. Performance monitoring – Effective procurement is about the continued success of the procured product or service — not simply the procurement itself. Make sure you’re monitoring the success of the project with regular audits and report back to your provider on any findings. For an additional fee, you might be able to employ your provider to conduct monitoring and performance checks on your behalf.

Seamlessly manage procurement outsourcing with Vertice

The Vertice platform allows subscribers to maintain visibility and control over all of their outsourced procurement contracts.

As the number of these contracts increases, the platform acts as an essential tool for those looking to make significant time and cost savings, suggesting improvements to services and subscriptions and notifying users when vendor contracts are up for renewal.  

In addition to this, our customer purchasing teams can help in some of the key stages of the procurement process. We empower our clients at the negotiating table by leveraging transactional records from vendor sales, so that businesses never again have to overspend on SaaS products.

For too long, pricing obfuscation has been a significant pain point for SaaS customers, existing and prospective; Vertice bypasses this problem by offering specialist procurement services, well-supported by our SaaS purchasing platform and white glove service.