Procurement Outsourcing Growing
December 2, 2009
Writing for International Trade Theory and Policy Steven M. Suranovic, said that the theory of comparative advantage in economics mandates that two countries will find it beneficial to trade with each other in items that they can and do produce at home, if the same can be produced more cost-effectively across the border!
That, in the nutshell is the main logic behind the outsourcing trend. Internet has just made is easier to trade in this manner, especially in “soft” informational products and services that can easily be delivered over the web.
Barry M. Leiner and associates note in A Brief History of the Internet, that vendors initially provided basic network products and service providers gave connectivity services. However now the Internet is treated as a “commodity” service with its informational structure supporting other commercial services that provide information and products globally!
Adding to this, Richard T. Griffiths notes in The History of the Internet that the web made the net useful only because people are interested in information and don’t really want to know about computers and cables.
Applying the same example to the outsourcing trend, consumers just want good quality products vended to them at the right price, possibly at their doorstep. They really don’t care, whether the producer is a fellow national, or a techie sitting in a seedy office in Bangalore.
Not surprisingly, companies are increasingly using third-party procurement services, even for essential purchases, prompting Everest Research Institute to predict that there may be a25% rise in procurement outsourcing next year, as companies restructure and emerged from this year’s economic crisis.
According to The Black Book of Outsourcing also, the market for third-party services that help businesses buy smarter is poised to become a $2 billion industry.
One bullish estimate is that better buying decisions ‘will increase profits by £53 billion’ in 2010. Procurement outsourcing firm buyingTeam calculated the amount based on information from global data provider FactSet. And spearheading this trend would be companies in the construction, chemicals, and technology sectors.
The only requirement is to be careful about strategic supply chain re-engineering otherwise it can lead to “disastrous results,” warn experts
These experts recommend full transparency during procurement as well as tight control over contracts with different suppliers.
Lastly, as says a Genpact study, 7 Procurement Outsourcing Myths, Demystified!!, although labor arbitrage may contribute to savings, procurement outsourcing (PO) also help customers drive significant cost-outs, especially in tail-end spending that is still largely unmanaged in the industry. Once that happens and the practice matures, the gains from PO would automatically multiply.
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