Procurement outsourcing

In the development of the supply chain strategy, there is a critical question for each company to answer. It is, "How and what should be outsourced " Outsourcing to third parties can happen in all supply chain links—sales, distribution, manufacturing, procurement, and iimovation— in building a value chain. It can add value, reduce costs, and improve time to market, but it increases the need for planning, supply chain coordination of day-to-day activities and inventory, and visibility. Although companies can outsource their day-to-day supply chain activities, they cannot outsource... 

The outsourcing helps them to reduce the efforts to procure these items from various sources. These efforts are outsourced to other firms that can perform the activities better or more cost-effectively. The company can thus primarily concentrate on those activities in the production chain in which it has more competencies such as actual production, pollution and quality control, and safety matters. 

United Technologies (UT), now a part of Honeywell, recently outsourced its nonproduction procurement to IBM Global Services. Among the company s objectives in outsourcing was to force standards and best practices by centralizing with IBM. The CEO committed to his shareholders that this move would result in annual savings of 750 million in 2000. 

Aberdeen Group. 2004. Outsourcing portions of procurement Now a core strategy. 

In a study done by Accenture and Northeastern University (Mulani, 2005), it was found that Business Process Offshoring (BPO) doubled from 40% to 80% of companies surveyed during 1994-2004. As a percent of the budget, BPO increased from less than 20% in 1999 to 40% in 2004, nearly 15% annual growth. The same study also found that transportation and related services were the most supply chain management functions to be outsourced. Another growth area was the outsourcing of procurement function. 

Modular design combines both, the benefits of standardization and the benefits of customization. The advantages of modularity result from the reuse of parts and the repetition of operations. Hence, higher quality, lower cost of production, lower delivery time and easier spare parts procurement are expected [10]. Modularity facilitates collaboration and thereby helps to increase flexibility and to minimize economic risk. Since many modules already exist and can be purchased from an external vendor, the best module available (outsourcing) can be selected. Because of mutual independency a module is easier to design, produce, test, maintain and repair than a single more complex system [11]. As a result, a large product variance can be covered with a minimum quantity of modules. 

Today, the hospital pharmacist is still mandated to control the supply chain, however there are challenges firom supply chain professionals supported by those who consider medicines to be no different firom any other commodity. Procurement now has to take place in an environment that has more and more budget restraints and external paralysing constraints induced by unwanted dependencies of third party suppliers and sometimes even drug shortages. If the skills are lost, important financial resources would be needed to reactivate lost know-how related to neglected technical equipment or outsourced activities. However, such time is not available in situations such as medicines shortages. Consequently, re-adaption may cost more than ever could have been saved. 

Options for procurement from an outside party outsourcing the plant equipment... 

The planning and procurement cycle covers short- and longer-term requirements. The demand of the product and its components (biU of materials) are compared with the inventory and capacity and the replenishment requiranents are planned. Planners will decide what to buy and what to make. This make or buy decision process also applies to a service organization leading to either in-house or outsourced services. 

The development of a professional service industry has also in recent years increased considerably however, as observed by Mitchell (1998) purchasing teams appear to have made less effort to reduce costs by outsourcing services. Nonetheless the importance of service level agreements and supplier partnerships are growing in the global supply chain. A survey by Wade (2003) showed that 31 per cent of total procurement cost is for bought in services. 

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