Procurement outsourcing is a hot issue with large businesses in the current financial environment. Procurement outsourcing is the transfer of the procurement or purchasing department to another specialized company. This allows the company to benefit from the expertise of the outsource company. This also has cost benefits for the sourcing company.

Procurement and outsourcing enables a company to concentrate on its core competencies without the need to staff and manage an internal purchasing department, with all the costs that involves.

Many large companies have long outsourced its indirect purchases, which are those that allow it to manage its day-to-day activities. This would include such activities as recruitment, marketing, facilities management and office services such as cleaning.

Whilst it seems almost natural for indirect purchasing such as hiring staff or purchasing advertising space, companies are now looking at the cost savings that can be found from the procurement outsourcing of the direct purchasing activities.

Direct purchasing are goods that are purchased either to be sold on to the consumer or as part of a production or manufacturing process. Therefore, if you are a wholesaler, the purchase of your initial products would be a direct purchase and if you are a toy manufacturer then the plastics you purchase are also direct purchases.

In the United Kingdom, the government has gone one-step further and created PFI projects (Public Finance Initiatives) where large companies bid to run public buildings such as hospitals. The winning business provides and manages all the facilities, cleaning and day to day running of the hospital for the next 30 years.

Business travel has always been a popular service to outsource. Many companies allow a separate company to purchase all their travel, flights and hotels. The business benefits from cost savings as well as not having the bother of managing so many small ad hoc purchases.

The public sector has always outsourced their purchasing to various degrees. Much of the procurement is put out to tender and competition to win the contracts is fierce. This is because public sector work is regular holds some cachet and is reasonably well paid.

With the rise of the Chinese, Indian and Taiwan manufacturing capabilities outsourcing of manufacturing has become very popular. Indeed most computers and many electrical goods are now manufactured in the Far East. This means that all of the company’s manufacturing purchasing is also completely outsourced. Not only does the company benefit from very low manufacturing costs, but they also benefit by not having to purchase all the component parts.

You can clearly see that procurement outsourcing is now a key part of many large company’s business strategies and that they are clearly benefiting from this decision.