What Is Procurement Outsourcing?

Purchasing outsourcing means that companies can outsource all or part of their procurement business activities to professional procurement service providers while concentrating on their core competitiveness. Professional procurement suppliers can assist with their more professional analysis and market information capture capabilities Enterprise management personnel carry out overall cost control. Reduce the cost of procurement in the operation of the enterprise.

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Purchasing outsourcing means that the enterprise will gather all or part of its procurement business activities while concentrating on its core competitiveness.

After the outbreak of the global economic crisis in 2008, China s SME awareness has increased their awareness of risk control. In particular, most coastal enterprises have outsourced their procurement operations to professional procurement service providers, which can help companies save fixed investment and reduce procurement costs. To reduce operating costs. However, in the western part of the mainland, some business owners are constrained by traditional ideas, and the development of procurement outsourcing services in the west is more difficult.

Procurement outsourcing helps companies to focus more on their core business. Professional things are left to professional people. For SMEs, procurement outsourcing can reduce procurement costs, reduce personnel investment, reduce fixed investment, reduce procurement risks, and improve procurement efficiency. For SMEs, procurement outsourcing is the best way to reduce costs.

At present, many enterprises in China are constantly exploring in order to find new procurement outsourcing models. For example, Sichuan Enric has combined procurement outsourcing and joint procurement, and has taken a new path. These enterprises not only need to continuously explore, explore and innovate outsourcing models, but also continuously guide small and medium-sized enterprises, and also educate small and medium-sized enterprises to accept the abandonment of the old purchasing model.

The characteristics of procurement outsourcing are: parallel operation distribution mode; in the organizational structure, companies that implement procurement outsourcing have greater flexibility due to the streamlining of procurement operations; rely on information technology to achieve the integration of external resources; procurement outsourcing Can make enterprises focus on the development of core competitiveness.

The term "outsourcing" was first seen in a 1990 article by Gary Hamel and Prahaoad in the Harvard Business Review entitled "The Core Competence of the Corporation," "outsourcing" The literal translation of the word is "seeking external resources", and later translated into externalization, resource outsourcing, resource extraction, etc., is the abbreviation of "Out Source Using". The general definition of outsourcing in the theoretical world is: "In the case of limited internal resources of an enterprise, in order to obtain greater competitive advantages, only its core resources with the most competitive advantages are retained, and other resources are aided by the best external specialized resources It is integrated to achieve a management model that reduces costs, improves performance, enhances the core competitiveness of the enterprise, and enhances the company's ability to respond to the environment. "

Since the 1980s, the theoretical research on "outsourcing" has focused on the following two aspects: (1) Outsourcing theory based on transaction costs [1]: Cheon, Grover, and Teng (1995) studied information technology outsourcing. Outsourcing only occurs when the sum of outsourcing transaction costs, management costs, and supplier supply costs is less than its own production costs; Vinning and Globerman (1999) believe that the sum of production costs, negotiation costs, and opportunistic costs is the smallest basis for outsourcing decisions In addition, Klaas, MeClendon, and Gainey (1999) studied human resource outsourcing, arguing that total transaction costs come from prices, the cost of maintaining contracts and employee relationships, monitoring costs, and opportunistic costs. Different governance structures lead to different costs, and decisions The basis is that total transaction costs are minimal. (2) Outsourcing theory based on core competitiveness [2]: The core competitiveness theory is the theory of corporate development strategy proposed by American scholar Prahalad and British scholar Hamel in 1990. The theory of core competitiveness believes that enterprises are a collection of resources and capabilities. Heterogeneity of resources between enterprises or special capabilities owned by enterprises are the key factors that determine the competitive advantage and operating performance of enterprises, that is, core competitiveness, which is a series of technologies. An intangible and dynamic capability resource formed by the systematic integration of systems and organizational management systems. From this theory, business processes can be divided into strategic processes and non-strategic processes [3]. The strategic process is the process that plays a key role in the strategic selection and execution of the enterprise. The core competence and core business of the enterprise depend on the strategic process. A non-strategic process is a process that supports and guarantees a strategic process, and it includes ancillary business and additional business of the enterprise. Strategic processes are the source of a company's sustainable market competitive advantage and must be internalized. Non-strategic processes should analyze the closeness of the relationship between them and strategic processes. Those with a low degree of closeness can be outsourced; those with a high degree of closeness should be internalized or arranged through some close cooperative relationship.

Business outsourcing theory has four structural elements: outsourcing subject, outsourcing target, outsourcing partner, and outsourcing design. The main body of resource outsourcing is the economic institution that decides whether to outsource or not. The goal of resource outsourcing is the result of the outsourcing process. The partners of resource outsourcing are all the suppliers who may complete the outsourcing goal. The outsourcing design is the planning of the outsourcing method. The management objective of outsourcing relationship is to make the behavior of outsourcing partners consistent with the objectives of the outsourcing subject.

In a fierce market competition environment, companies will feel huge

Purchasing outsourcing can achieve lower procurement costs and higher

1. Application scope of procurement outsourcing strategy

In today's competitive environment, no one procurement strategy is suitable for all products and services of an enterprise. To reasonably define the scope of application of procurement outsourcing strategies, a supply breakdown method can be used to classify and analyze the various products and services supplied by the enterprise. In the procurement and supply management of an enterprise, supply cost and supply risk are the core issues that purchasers are concerned about. Supply cost indicates the importance of each product or service.

Procurement business outsourcing as

According to Lisa M. Erlam and Thomas Y. Joey's "Value Added in Purchasing and Supply Management" analysis, there are ten reasons for companies to adopt a procurement outsourcing strategy: to improve their professionalization of core business; To reduce or control operating costs; use external resources of the enterprise; release resources for other goals of the enterprise; accelerate the speed of engineering benefits; functional departments that are difficult to manage or control; access to capital funds; access to cash flow; risk sharing. For SMEs, there are at least the following reasons for adopting a procurement outsourcing strategy:

Accelerate the restructuring of procurement business. Enterprise business process restructuring takes a lot of time, and it takes a long time to obtain benefits. Outsourcing is an important strategy for business process restructuring, which can help companies quickly solve the problem of restructuring procurement business. For enterprises implementing outsourcing procurement, not only can they integrate the core procurement capabilities of existing enterprises with the core capabilities of outsourcing suppliers, but more importantly how to consolidate and enhance their core procurement capabilities. If the company ignores the cultivation of its core procurement capabilities, it will lose future development opportunities.

Leverage external resources not owned by the business. If the company does not have the resources needed to effectively complete the procurement business, the enterprise can outsource the procurement business. When an enterprise outsources procurement, it is necessary to carry out procurement cost and profit analysis to confirm whether such outsourcing is beneficial to the enterprise in the long term, and then decide whether it should adopt an outsourcing procurement strategy. While concentrating resources on their core procurement business, companies make use of the resources of other companies to make up for their own shortcomings, thereby becoming more competitive.

It is difficult to control the original auxiliary procurement business. SMEs can outsource auxiliary procurement operations that are not efficient internally, but this method cannot completely solve the problems of the enterprise. On the contrary, these business functions may become more difficult to control outside the enterprise. Therefore, companies must take the time to find the crux of the problem.

Control purchase costs. Outsourcing procurement can reduce expenditures and strengthen procurement cost control. At the same time, outsourcing suppliers have a higher degree of specialization and can achieve economies of scale. Therefore, it is destined to have lower procurement costs and higher procurement efficiency. From an economic perspective, outsourcing procurement can increase the wealth of the whole society.

Share procurement risks. SMEs can diversify risks arising from economic, market, and financial factors through outward resource allocation. The enterprise's own procurement resources and capabilities are limited. Through the outward allocation of resources and sharing the risks with external outsourcing suppliers, enterprises can become more flexible and more able to adapt to changing external environments.