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Sourcing v/s Procurement- The tug of war

Organizations have come a long way, stepping away from considering the purchase department as an administrative function which is limited to order management, to the current scenario of strategic sourcing and procurement. Sourcing personnel have now begun being involved in the development of requirements, specifications and value analysis (for example, automotive industry leads through concurrent engineering, VA/VE programs perpetually). However, traditional organizations which have a common team which handles sourcing as well as procurement activities often find that the transactional procurement activities take precedence over sourcing. This leads to savings leakages, opportunities lost and compliance issues. The scenario could be because of various reasons:  time and capacity constraints, lack of skilled resources, lack of use of technology tools and non-standardized processes etc.

So, what are the ways out? A clear segregation between the transactional procurement and sourcing departments, outsourcing of the transactional processes and the non-critical activities/categories thus freeing time of the in-house resources to concentrate on more strategic work, and more use of technology like e-sourcing tools, process automation etc.

This New Year might bring in new challenges for the sourcing and procurement functions the world over, but with the best practices being put in place in the function, they would be well versed to meet the challenges head-on.

Comments

Completely agree Deepa. I too have worked in some organizations where the Sourcing & Procurement co-existed in a single department. The key focus of the Function shifts to SLA tracking, managing operational issues, resolving issues on material delivery & blocked invoices etc. Its imperative for the Function to have dedicated and unspoiled focus on Sourcing and category management

While our focus of debate being Sourcing vs procurement, I believe there is actually no tug of war but the way the legacy procurement systems operating in organisations allow no scope for scaling up into a full fledged S&P fuction. The need of the hour is a Procurement transformation, merely bringing in an outsourced provider for delivering the non core ativities may help win only half a battle by taking away a few symptoms and not the disease, what is more important is how an outsourced partner can also look into core activities like reorganising the procurement function,leveraging technology to enable realistic dynamic analysis into spend patterns, using industry knowledge to help the organisation develop overall and category sourcing strategies and also building a pool of trained S&P experts in the organisation, in short the scope of outsourcing spans across all activities starting from strategic sourcing to the transactional P2P process.

If we look at small & medium sice companies they will always be restricted with the kind of budgest they have and will be pushed to scenarios and sorucing & procurement are done by the same individual/department. The need of the hour is for organizations to realize the advantages that come along with specializing these 2 departments who have dependable KRA's thus facilitating the overall savings objective of the organization. I do agree with the concept of outsourcing non critical commodities but the pros & cons need to be explored in detail especially in terms of Supplier Risk Management

Hi Dhanesh,
I completely agree with your thoughts. Small and medium businesses do have resources constraints due to which one individual might have to take on multiple responsibilites, standarding and streamlining of processes and clear-cut objectives would help them in performing efficiently.

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