As a career purchasing professional who works for an outsourced purchasing service, I found Bill Koskie’s article, ‘The Business Case Against Outsourcing’ (PUR: May 2, ’02; p.48) interesting. I agree with Mr. Koskie’s summation that outsourcing the procurement function may not be the lowest cost option for every company.
As a career purchasing professional who works for an outsourced purchasing
service, I found Bill Koskie’s article, "The Business Case Against Outsourcing"
(PUR: May 2, ’02; p.48) interesting. I agree with Mr. Koskie’s summation that
outsourcing the procurement function may not be the lowest cost option for every
company. However, I would like the opportunity to explain why in most cases
outsourced purchasing is a low cost solution that also delivers the largest
cost savings. I would also like to offer a nontraditional view of how outsourcing
can be a positive influence on today’s purchasing professional.
Why companies outsource purchasing
By way of example, outsourced purchasing tends to start with less strategic
commodities such as maintenance repair and operation (MRO) and information technology
where the buy has already been abdicated to end users utilizing procurement
cards. The value of outsourcing in this and many other cases is in centralizing
the buy to manage and control the wide variety of items purchased, allowing
for product aggregation and reduced process costs.
As a first step, centralization and aggregation allows buyers to analyze clean
centralized data, identify the best price and negotiate with suppliers to extend
the price point across the company. There are huge savings to be achieved through
centralization and organizations with the technology and resources should implement
Most often however, companies do not have these capabilities, resources or
time. Enter an outsourced purchasing firm that has the technology, processes
and people, as well as the experience of implementing procurement strategies
for multiple customers and you can understand why companies are attracted to
the concept of outsourced procurement. These companies can jump-start purchasing
initiatives and receive immediate bottom line cost savings without incurring
large investments in technology and implementation. Additionally, they convert
their fixed costs to variable and receive the benefit of significant cost savings
due to the leveraging of volumes, headcount and technologies across multiple
There are a dozen other scenarios, both in direct and indirect commodities
that illustrate why it makes good business sense to outsource the purchasing
function and hundreds of success stories to point to as evidence that it works.
However, one item that isn’t addressed a good deal in the media is the digression
Mr. Koskie made at the end of his article where he listed the requirements of
a true purchasing professional.This digression spoke loud and clear that the
reason why outsourcing is a bad idea (in the purchasing professional’s mind)
is that it may lead to displacement. This is a valid concern.
The good news is that there will always be a need for high-quality purchasing
professionals, and rather than viewing outsourcing as a threat, purchasing professionals
need to realize the opportunities that exist. When a firm decides to outsource
the buy, someone still needs to negotiate the contracts and manage the supply
It can be argued that for a purchasing professional, the desired state is to
work for a company whose core competency is purchasing. These companies take
purchasing seriously and recognize the value of the profession. They are comprised
of competent purchasing professionals from large and small companies across
various industries. Together, the best practices of these purchasing managers
and buyers are combined and new insights are developed and implemented.
The evolution of outsourcing is an evolution of the purchasing profession.
Industry is finally recognizing purchasing as a profit center and appreciating
the tremendous value it can offer. They are also recognizing it as a business
in and of itself and many companies acknowledge it is not the business they
are in. So, rather than fearing the unknown and in response articulating the
evil nature of outsourcing, today’s purchasing professional needs to understand
the marketplace, recognize their own value and pursue the opportunities that
exist in today’s changing business environment.
Matthews holds a BS from General Motors Institute and MBA from the University
of Michigan. He began his career in production and process engineering at General
Motors Corp. and transitioned to purchasing and worked as a buyer of MRO, services,
steel and production parts for Ford Motor Co. Matthews now works for Direct
Sourcing Solutions, Inc., an outsourced purchasing service