Procurement outsourcing

As an example, let’s consider the Nestle where special departments have been open (Nestle Business Centers (NBS)). These departments are responsible for payroll, implementation of transaction and accounting operations, and administration of the staff base. One of the branches is open in Lviv. This branch has about 1,000 employees and serves about 30 countries in Western and Eastern Europe.

The next company that uses this approach is called JTI. It created the Business Service Centers (BSC) around the world. Service centers of this company work with transactions (implement transactional assistance to business). Information on the company’s website says that the center carries out approximately 5 million transactions around the world.

The Microsoft company, having advanced technologies, has left on many steps forward. One purchasing manager is responsible for purchases in 2-5 markets by means of a couple of outsourcing firms. Outsourcing was engaged in the management of contracts, transactions on purchases, support of the RFP-process. The whole process is supported in 12 — 22 languages (depending on need) and passes through three main hubs. Accordingly, the purchasing manager carries out strategic tasks, the forecast of the performance of political activity firm for purchases and also works with business and clients for selection of the most suitable decisions.

Let’s look at several directions of outsourcing reception to different sections as an example. Maintenance and offices rental (representative offices) in the regions; development of creative concepts; training, recruitment, administration and staff management; the creation of promotional materials for activities, or the administration of this procurement is an example of a set of services, with the continuation of unchanged promotional activities across the country. One company was determined for these purposes. It managed these processes in return for working with almost all suppliers. This arrangement allowed to reduce the number of transactions and improve some budget items through the decision of long-term contracts and also allowed to improve the working time of marketing, trade marketing and purchasing department. The main ratings and rates were approved, by which this agency worked. The role of the employees of the purchasing department was to negotiate and conclude questions in which there were some differences, as well as in the supervision and prediction of this process.

Another example is taken from the category “Business Travel” of the management category. This category was served by an international provider of the company at a mass level. From this provider, information was passed on the business trips of all employees. What dividends did this approach bring? Each country had one specialist in this matter, the rest cases involved employees of the service company. With the support of specialists of this company, managers for the client had the opportunity to find the best solutions for optimizing processes and costs by optimizing transaction costs. From every country of the world, the employee had the opportunity to contact the employee support service in the 24/7 mode and solve the current situation.

Outsourcing of the purchases has many skeptics who highlight the following drawbacks:

  1.       The difficulty of retaining employees who are transferred to outsourcing firms;
  2.       The poor performance of the contract criteria;
  3.       Erroneous selection of the service provider;
  4.       Unjustified expectations;
  5.       Loss of control over the process;
  6.       The impact of external stakeholders;
  7.       Regress in relationships.

To reduce risks, it’s necessary to consider everything carefully and use the following rules:

  •         a standardized decision making and planning process;
  •         drafting contracts with the possibility of reviewing and canceling the contract, an integral service level agreement (SLA) should include both quantitative and high-quality performance characteristics for objective analysis;
  •         identification of areas of responsibility and key persons who make decisions;
  •         value and cultural association at the level of relations with suppliers and employees, who can be transferred to outsourcing;
  •         a clear definition of the leading and strategic functions that are not required to outsource, if the firm wants to preserve competitive qualities;
  •         during the selection of the provider of outsourcing proposals, the definition of exact criteria, as well as the allocation of resources and time to manage all outsourcing, with the intention of reducing operational difficulties in the future.