Procurement outsourcing as an activity is fast gaining pace in the outsourcing industry. It refers to the transfer of procurement activities such as sourcing and supplier management to a third party service provider. Companies are increasingly outsourcing procurement activities to reduce cost, drive efficiency and to focus on core strategic issues. As a result more and more service providers are entering the market to provide procurement services for clients.
GEP (Global eProcurement) is a leading procurement services firm providing procurement and supply chain services for enterprises to improve their business strategy and financial performance.
Below we discuss a case study on how procurement outsourcing services by GEP helped a consumer products manufacturing firm to improve process efficiency and increased the speed to market of their products.
The client is a Fortune300 listed consumer products manufacturer.
Challenges faced by client:
The in-house procurement team of the client was not organized well. The main issues faced by the clients were:
- 30% of Purchase orders remained in open status for more than 90 days.
- 70% of invoices cleared only within seven days.
- About 24% of raw material deliveries delayed by the suppliers for more than 30 days.
- The procurement wages were not matching with the market rates.
All these issues started affecting their process efficiency which in turn affected their production capacity.
Procurement Solution from GEP
The client decided to outsource their procurement process to a third party service provider. They turned to GEP to help them with procurement and streamline the process.
- GEP took over all the transaction responsibilities involved with procurement of raw materials necessary for manufacturing of the product.
- They deployed a cross-skilled team to carry out the procurement process for the client.
- They designed a process map and set standardized operating procedure to be followed at all phases of procurement process.
- They developed contractual agreement specifying the level of service required to be met by the suppliers.
- The service providers developed a reporting dashboard which would help the procurement officers to keep in track of the procurement process and to take appropriate decisions.
- GEP also benchmarked the current performance of the team with that of the industry standards.
The flexible team helped the clients to improve their process efficiency. Within 6 weeks of transition period, GEP helped the client:
- Reduce the open schedule of purchase orders beyond 90 days to less than 10%.
- Clear 90% of blocked invoices within 7 days.
- Shorten the delivery delays by the suppliers from 24% to 5%.
- Track the performance of vendors through score-carding.
- Focus on more strategic issues.
The above case study clearly depicts how procurement outsourcing helps the companies to gain competitive advantage by driving efficiency and reducing procurement cost.