The Trade-offs of Outsourcing Procurement

This is an excerpt of the original article. It was written for the December 2015 edition of Supply Chain Management Review. The full article is available to current subscribers.

December 2015

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To streamline their operations, many organizations are looking to outsource activities that do not need to be handled in-house. The procurement function can be a focus of outsourcing efforts if the organization determines that certain routine activities fall into this category. The types of activities can vary by organization, but in general they include tasks such as developing and executing simple contracts that involve little negotiation and are not integral to the organization’s overall business strategy. For many organizations, outsourcing presents a win-win—the organization frees up employees to focus on more strategic duties while maintaining some control over its procurement activities.

APQC’s Open Standards Benchmarking data in procurement indicates that just under 30 percent of responding organizations have initiated the outsourcing of non-strategic activities in their procurement functions (Exhibit 1). Twelve percent of responding organizations plan to invest in such programs within the next two years, meaning that 40 percent of organizations in APQC’s data find the idea of outsourcing more routine activities appealing for their procurement functions.

As part of its research, APQC compared the procurement performance of organizations that currently outsource non-strategic procurement activities against the performance of organizations that do not currently outsource. The results indicate that organizations outsourcing more routine procurement activities adopt more mature procurement practices than organizations that do not outsource. However, these organizations also have slightly higher costs associated with overall procurement processes, as well as with activities specifically related to ordering materials and services.

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