Procurement technology offers outsourcing alternative
Outsourcing as a business strategy began gaining prominence in the late 1980s and early 1990s as organizations began looking for ways to diversify to compete globally and to trim costs. Both were accomplished by contracting with a firm that specialized in a service that the buyer either was not set up to perform or could not perform as cost effectively as a vendor.
A specialty products manufacturer, for instance, can develop marketing concepts, but it probably is not equipped to design and print packaging, direct mail pieces and other collateral. Outsourcing that type of work makes sense even to the point, for some, of basically contracting with a marketing or advertising firm to provide a turnkey solution and delivery of the final product. The buyer provides guidance but not day-to-day, hands-on involvement. Accounting, legal counsel, human resources and building maintenance are among a host of other disciplines that are popular to outsource.
According to the International Association of Outsourcing Professionals, outsourcing is increasingly recognized by businesses, universities and economists worldwide as a critical management science. Not only are the latest developments in outsourcing helping companies reduce costs, but they are spurring innovation. Spending for outsourcing in all business activities has continued to climb at 10 percent to 20 percent for the last decade – in good economic times and bad.
In addition to gaining competitive advantages, outside expertise and cost reductions, outsourcing can enhance quality, reduce risk, avoid staffing issues and establish vendor contractual obligations. On the negative side, outsourcing can dilute the buyer's hands-on involvement, shift control to the vendor and not fully utilize the buyer's institutional knowledge.
However, by using new procurement technology, a buyer today can gain the advantages of outsourcing without experiencing the negatives. This is possible because of research and development that was conducted in the 1990s that culminated with patents being awarded in 2002, 2008 and 2010. The patents provide the foundation for a competitive procurement environment in which the buyer’s own vendors bid to win work by offering deep discount pricing of 25 percent to 50 percent as they schedule that work to fill their production gaps or downtime.
This strategy is further enhanced by vendors now being able to eliminate price precedent. Vendors normally price work based on how much the buyer is willing to pay. If vendors price too high, buyers shy away from dealing with them. If vendors price too low, then buyers want to hold vendors to the prior price. By eliminating price precedent, vendors can be allowed to bid high, low, or not at all with no repercussions on their receiving other work to price for which they are qualified. Vendors can now base their pricing less on what they perceive the buyer is willing to pay and more on the instant need to fill their production gaps or downtime.
Driving this advancement in procurement is a unique communications and workflow system that requires full interaction and documentation between the buyer's team and the vendor's team. Hands-on involvement is not minimized and control by the buyer is strengthened rather than weakened.
If a specialty products manufacturer were to use this system for buying its packaging, direct mail and marketing materials, the designer would put into the system theme ideas, layout suggestions, photos, etc. Because this system is web based, only buyer and vendor designees have access. Input is instantaneous in the system's self-contained, secure, intuitive and e-mail free environment. Should an art director with the vendor want to comment on draft layouts, that is possible with those remarks being available to all who have been granted access for that phase of the project. As work progresses, access among team members changes. Some may not need to communicate about production, packaging, delivery or invoicing. Others will. Some, such as the buyer's chief marketing officer and the vendor's account manager, may need access from start to finish.
Every task is benchmarked and the person responsible for that task must verify changes, its completion and make notations as needed. Because of the sophisticated level of information sharing, accountability is fully assigned and documented. Because all actions are available for everyone who is given access to see, the process is 100 percent transparent. Because every action and notation is documented and archived, the system becomes a powerful resource for planning future projects.
Outsourcing may be a misnomer for this type of interactive teamwork between the buyer and the vendor. This is more than contracting with an outside vendor and hoping for top quality results. This is more than a way to reduce costs significantly. New procurement technology offers an alternative -- one that proves innovation can have positive bottom line results without the negatives that are commonly associated with outsourcing.