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Global myths of procurement outsourcing: Myth 4 - PO results in a loss of control and increased risk

Proxima
Dec 4, 2012 6:21:00 AM

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This is often cited as a reason why people are reluctant to even consider procurement outsourcing. Yet it’'s an unfounded fear.  As any CFO that has outsourced will tell you: control goes up.  Risk comes down.

For example, you will get full visibility of your spending behaviors across the business - something many businesses don'’t have today. You will then be able to have far greater control over it (if you can’t see it today, how can you be controlling it?). 

An effective procurement outsourcer will invest heavily in the business partnering aspect of procurement - ensuring that the good work that the procurement team does is a) aligned with the business'’ need, and b) is adopted by the business.  It sounds simple, but this often doesn'’t occur today.

Another benefit of using a third party to manage your cost base over an internal function, is that it’'s much easier to hold a third party to account.  There are defined deliverables, processes and procedures - all of which increase the level of control you have over your function.  The outsourcer will go out of their way to demonstrate in real terms the benefits of their work. 

The issue of risk is different.  A business leader may be happy today in the belief that the level of risk the business faces is low.  However, they don'’t know what they don'’t know.  We typically find that the overall level of risk a business is aware of goes up after we become involved - because we make business aware of the risks in the supply chain.  And we then manage it down.  The question here is, what would you prefer:

  • A situation where you think your risk levels are low, but you actually face high levels of risk - you just can’t see them; or
  • An awareness of the actual level risk you face, and an action plan of how to mitigate it.

The truth: Procurement outsourcing increases the level of control a CFO has over his cost base, and reduces the level of risk the business faces.

In the next post, I’'ll explore the myth that people have around outsourcing meaning off-shoring.

*Click here to access the related posts: Myth 1: ROI comes from cost reductions, Myth 2: The ROI from procurement outsourcing is insufficient Myth 3: PO damages stakeholder relationships and Myth 5: PO means off-shoring

 

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