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The State of
Massachusetts has defined Procurement as "the
process to obtain materials, supplies, contracts
at the best price reasonably available through
open and fair competition."
The use of
Procurement Service Providers is rapidly
increasing due to global market conditions and
the need for businesses to maintain and reduce
costs without eliminating resources. Many
world-class organizations have already
contracted with PSP's and estimates show that
nearly half of U.S. companies are considering
using PSP's in the next five years.
Please read the information below to learn more
abut Procurement Services
Providers.
What
is a Procurement Service
Provider?
A Procurement Service Provider, or PSP, is a third party
organization or consultant which is used to
supplement internal procurement departments.
PSP's have their own staffing which assist in a
variety of tasks for their clients. These
tasks include: strategic planning, implementing
best practices, supplier rationalization,
supplier collaboration, strategic
sourcing and
negotiation.
"Enterprises utilizing PSP's have
been able to improve spending coverage, reduce
costs for goods and services, employ industry
best practices, leverage the latest procurement
technologies, and streamline source-to-pay
processes - all without taking on the risks and
assets required to achieve such
results."
Aberdeen Group
Research Abstract
You Will Outsource Procurement:
Here's Why and How -
October 16,
2002
Why use a Procurement
Service
Provider?
At most organizations, it is very
expensive and difficult to maintain domain
expertise in every category of spend.
Using a PSP avoids the burdens of procurement
infrastructure for non-strategic categories. A
Procurement Service Provider can provide a rapid
analysis of an organizations spend and implement
changes, negotiate with suppliers, and use
proven industry
best practices. A good PSP will become
an extension of the organization's existing
procurement resources, in a non-obtrusive
fashion.
In a recent article titled "Strategic
Sourcing in the Mid-Market Benchmark: The Echo
Boom in Supply Management", the
Aberdeen Research Group wrote about
potential new approachs of Mid-Market company's
sourcing initiatives due to findings showing
that they currently have mostly fragmented
or limited sourcing efforts. Specifically,
to remain competitve, Mid-Market companies
should have "Increased reliance on third-party
consultants to help define strategic sourcing
process and train internal employees on
commodity costing models, sourcing automation
tactics, and category and supply market
assessments."
Additional research
shows:
"...research of enterprises
that have outsourced management of specific
procurement processes and/or specific categories
of spending have been able to achieve material
cost reductions that average between 10% and
25%. In some cases, material cost
reductions topped 30%."
Aberdeen Group
Research Abstract
You Will Outsource Procurement:
Here's Why and How -
October, 16
2002
How do I use a Procurement
Service
Provider?
The answer is: it is up to
you. Some organization choose to
completely outsource their procurement
departments to a dedicated procurement
company. However, this is not possible for
most customers due to the complexity of their
business and the goods/services that are
purchased to support it.
Every organization is
unique, and there is no single answer that works
for any organization. Procurement Service
Providers can be used in any of the following
scenarios: replace your current procurement
department, supplement your current resources in
strategic or non-strategic product areas,
provide electronic tools to make your
procurement department more efficient, or simply
as consultants for implementing best
practices.
Keep in mind that you do
not have to outsource your entire procurement
network, it is usually best to select a target
area, and gain top-level support within your
organization before contracting with a
Procurement Service
Provider.
How do I decide who to
use?
There are a large variety
of Procurement Service Providers in the market,
and new companies are moving into the market
every
day.
Many Procurement Service
Providers only offer a "piece" of a solution,
such as electronic tools or commerce, or they
take over your process, produce some results,
and never transfer the knowledge back to your
team.
When selecting a
Procurement Service Provider, it is recommended
you follow these steps:
- Select an Organization that
has a variety of product
offerings. (try to select an
organization that offers a combination of
tools, consulting, or implementation
skills. This will provide your oganization
with the best possible result, as each piece
individually does not provide the results that
an entire solution can offer)
- Select an Organization that
has been established longer than 5
years.
(this may help to eliminate the new consultants
that have moved into the market recently and are
simply looking to make a profit off of your
organization, often at the expense of your
vendor relationships)
- Select a Procurement
Service Provider that covers a variety of
Procurement Product & Service Areas
(instead of
contracting multiple procurement service
providers, find a single provider that has had
experience or qualifications to handle all of
your target procurement areas. It is not
advisable to hire multiple consulting firms that
each specialize in 1 or 2 target areas. It
will be draining on your resources to manage the
multiple contacts and projects, and most single
product area service providers do not respect
your relationship with your vendors)
- Check Reference
(Any
established Procurement Service Provider should
be able to provide you with references that are
in some way related to your
organization)
To get started, visit
our Partners to
read about established Procurement Service
Providers. |