Outsourcing or co-sourcing: what works best for you?

The modern business world requires adaptability. It also requires expertise, knowledge and skill if you want to thrive. Sometimes, our organisations  might be lacking in one of those in a particular area. And that’s not because the people you hire aren’t good enough or your business is inherently deficient. It just so happens that there are people and organisations out there that can do some of what we require far better than we can ourselves.

Often, that’ll be a certain part of the business that isn’t your core service or product – it’s not where you earn your money. Nonetheless, it’s an important part of the business to get right because it’s either costly or necessary for you to deliver on your core function.

Indirect procurement certainly falls into that category. It accounts for all the items, products and services that you need to run your organisation. They’re crucial to what you do because without them the job would be that much harder. And because they amount to around 20% of your overall expenses, its essential to get them right. But doing that can be pretty tough if you don’t know where to start – and few organisations do.

Fortunately, there are organisations that do know where to start – and more importantly how to optimise your spend, save you time, money and whole lot more. I-Tel is one of those – we specialise in indirect procurement and work with clients in a number of ways.

Here’s how we do that.

Outsource: rely on the experts

The business guru Peter Drucker once said that you should focus on what you do best, and outsource the rest. It’s sound advice, especially if you want to optimise business units that fall outside your area of expertise. Indirect procurement, as we have discussed, is just that for most organisations.

When you outsource your indirect procurement you achieve a number of things. As Drucker says, you increase your focus on core activities and strategies. Simply by removing a layer of responsibility from your team, by removing the distraction of admin and non-essential work, you hand them back a chunk of time.

That time can (and should be) spent doing work that adds value to the business – either executing strategy, creating efficiency or working to optimise the end product or service.

Specifically, when you outsource procurement you’re almost always getting a reduction in the overall costs of goods you buy. At I-Tel, they typically manage to save customers 15% in the first month, and a further 10% in the months that follow. The initial saving offsets the cost of our service, so the remaining savings can be reinvested in building the business.

But that’s not all you get.

“When companies outsource their indirect procurement to us, we take a data-backed approach,” says Managing Director Melvin Gauci. “We’ll systematically analyse their spend over the last six months to identify cash leaks, rogue spend and inefficiencies in the supply chain. We apply our expertise to optimise any problems we find. The result is better buying for the whole business.”

Gauci adds that the improvements don’t end there. The company uses sophisticated technology to monitor the market for price fluctuations and stock availability, while leveraging a vast network to mitigate bottlenecks and stock shortages. The net result is constant improvement and refinement that lead to increased profitability and performance.

“Because we manage the entire procurement cycle – from sourcing to delivery – we’ve got expertise and understanding of each aspect of it,” he says. “It means we can be flexible for our clients and work with them to meet their demands. Some choose to combine their suppliers with ours; others like to store their goods with us, and have us despatch and deliver them to their sites. It’s really about being a reliable partner that gets that specific area of the business performing at its best for that particular client.”

Vital support

If outsourcing your indirect procurement isn’t entirely necessary – you may have a team or department in place – but improvements are, then hiring expertise to provide internal support is a sound option.

This option, often called co-sourcing, gives you the best of both worlds. It allows you to leverage the expertise of the organisation you choose to work with, while at the same time maintaining a degree of control over the decision making and management of the function. In that respect it’s a lot more hands-on than outsourcing the function entirely.

Of course, the way you co-source is dependent on the business need. According to CIPs, co-sourcing can be divided into four tiers. Tier one offers foundational support, tier two transactional support, tier three analytic support and tier four  support strategic support. At I-Tel, they’ve found that this is largely true, though there can be, and often is, overlap when we co-source.

“We provide internal support to several clients that need help with the indirect procurement,” says Mel. “So that will typically be an audit of their historic spend, consolidating the supply chain and product and price benchmarking with the industry – all of which reduces cost consistently.

“This level of support allows them to build a coherent strategy, leverage our network and technology but maintain a strong hand in the overall process. It helps them to build a foundation for the future that’s grounded in data and best practise. And because it’s flexible and scalable, the clients can adjust to suit their operation and capacity while still optimising the way source.”

Mel adds that clients will often ask them to take care of problem categories or to consolidate aspects of the supply chain. The improvements are usually such that they’ll be asked to provide further support to the department, either through forecasting and analysis or through warehousing and logistics services.

“Whether a company outsources to us or asks us for internal support, our approach is always the same,” Mel adds. “We’ll take a thorough, data-driven view of the situation in-hand and look to make improvements from there – whether that’s cost reduction, improving the quality of the products they buy or providing storage & logistics.

“Whatever the arrangement, it is always a partnership between the client and ourselves. Our aim is to always improve and optimise what we engage with – whether that’s the entire function or a single category. That’s always in line with the client’s business overall. In that respect we consider ourselves another part of the company we work for.”

For more information on how you can improve your indirect procurement, contact us on 029 2049 2111.

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