HDip Strategic Procurement: Outsourcing and Cost Consideration Essay

This essay critically examines the role of cost in the outsourcing process within strategic procurement. The author explores the significance of cost as a primary driver in outsourcing decisions, while also acknowledging the importance of a value-based approach. The essay delves into the intricacies of procurement outsourcing, including direct and indirect procurement, and analyzes the advantages and disadvantages of prioritizing cost. It emphasizes the need for a strategic approach to procurement, involving internal needs analysis, supplier assessment, and strategic planning. The essay concludes by highlighting the importance of considering factors beyond cost to ensure effective and sustainable procurement practices. The student has used academic journals and peer reviewed material to support the arguments and has provided references.

Running head: STRATEGIC PROCUREMENT
Strategic Procurement
Name of the Student
Name of the University
Author’s Note:

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Table of Contents
1. Introduction............................................................................................................................2
2. Discussion..............................................................................................................................2
2.1 Outsourcing Process in Strategic Procurement................................................................2
2.2 Cost being the only consideration in the Outsourcing Process........................................3
3. Conclusion..............................................................................................................................6
References..................................................................................................................................7

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1. Introduction
Strategic procurement refers to long term plans to make sure timely supply of goods
as well as services, which are critical to the capability of an organization for the core purpose
of fulfilling the major business goals (Dong, Tang and Zhou 2018). The team would utilize
the data from the procedure of strategic procurement for development as well as
implementation of a strategic procurement plan. Outsourcing is a specific strategic tool,
which is commonly used for facilitation of opportunism that could undermine the principle of
strategic procurement (Niu et al. 2019). The following report outlines a brief discussion on
the factor that cost is the only consideration within the outsourcing process for strategic
procurement.
2. Discussion
2.1 Outsourcing Process in Strategic Procurement
Procurement outsourcing is the significant transferring of specific procurement based
activities, associated to supplier management and sourcing to any third party for the core
purpose of reduction of the total costs or might tighten the organizational focus on the core
competencies (Mburu 2017). Categorization of procurement as well as vendor management
of the indirect materials or services could be referred to as the most significant outsourced
activity. Outsourced procurement teams eventually enable the organizations to provide
advantages immediately from the expertise and support of the most experienced procurement
specialists (Wang et al. 2017). It subsequently avoids the overall creation of an internal team
and new resources as well as the respective time for the team to structure itself, its expertise
and its processes.
This type of outsourcing process is a major solution for different organizations, which
do not comprise of any internal competencies, however wants to gain maximum advantage

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from the procurement actions, such as contract management, suppliers and cost reduction
(Ramkumar, Schoenherr and Jenamani 2016). Moreover, these types of companies comprise
of internal procurement expertise or department; however want to eventually outsource
activity over specified areas, such as services and indirect materials. Outsourcing considers
procurement as a major non strategic or core functionality and also wants to manage it
through a specific procurement service provider (Rosar 2017).
Few companies even want to develop quickly a significant procurement functionality
for delivering savings with the basic willingness to internally develop their respective
functionality in the middle term (Vitasek 2016). With the help of strategic outsourcing, the
organization could easily develop channels of supply at the least cost as well as the least
purchase price. There are two distinct categories of procurement outsourcing, which include
direct procurement and indirect procurement (White and James 2017). The process of
outsourcing expands on traditional purchasing activities for involving every vital activity in
the procurement cycle, from specifications to the receipt as well as successful payment of the
goods or services.
2.2 Cost being the only consideration in the Outsourcing Process
Outsourcing process should be highly cost effective, so that each and every
organization is able to execute the process easily and promptly. Moreover, it helps to
complete the entire planning of different procurement procedures and vendors (Bolandifar,
Kouvelis and Zhang 2016). Cost is considered on top priority for outsourcing process in the
strategic procurement, as by this process the company or business could easily hand over
work to the outside vendors and hence quality of the product should be kept on the highest
priority (Cantù et al. 2015). The respective work procedure that could be handled from the
outside location of the company could be subsequently outsourced and the entire procedure
could be referred to as the offshore outsourcing. This particular process of outsourcing

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procurement is being undertaken by several larger organizations to save their money and this
procurement needs a higher deal of focus over costs saving, profit increment as well as
compliance (Holzhacker, Krishnan and Mahlendorf 2015). The best strategies for
procurement could be referred to as the major different within a failed business and a
profitable organization.
Outsourcing is a significant procedure of procurement, which can constantly
improvise and re evaluate the purchasing activity of an organization. It is also customized for
meeting the individual requirements of a client and hence providing chance for better
effectiveness and efficiency (Acimovic, Mijuskovic and Colic 2016). Several popular
organizations like Amazon, Walmart and Tesco have made their respective purchasing
strategies a major competitive benefit. Since procurement could be extremely complicated as
well as cost consuming in several larger organisations, hence few of such companies are
outsourcing procurement and not building their own world class capabilities of procurement.
The procurement outsourcer could eventually leverage their economies of scale and even
comprise of the major experience as well as trained employees, which cut the expenses and
also increase their respective efficiencies (Bolandifar, Kouvelis and Zhang 2016). The small
organizations, which comprise of experienced growth spurts are even outsourcing
procurement for taking high benefits to the external expertise and structures.
Cost is considered as a major aspect for this procurement outsourcing process, since
the companies would be gaining several distinct and important advantages without any type
of complexity or issue (Ramkumar, Schoenherr and Jenamani 2016). There could be a
massive reduction in the overall costs from the head count, computerization, office space and
even training to the respective employees and staff. Moreover, the organizations would even
ensure market leverage for enabling higher discounts and the specific transaction costs in one
purchase are reduced to a high level by the economies of scale (Dong, Tang and Zhou 2018).

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The marketing knowledge of the fact that the suppliers are the best for all the products to be
purchased. Furthermore an improved communication within the purchasing experts as well as
the organizational employees is increased and the respective company gains maximum
benefit without any complexity.
The organization would be able to ensure that there is a better management of
information and the purchasing analysis is made available for different individuals, who gain
knowledge about the purchasing environment (Holzhacker, Krishnan and Mahlendorf 2015).
The respective process of globalization is also enhanced and as a result the same products are
needed in various countries for the outsourcing process and negotiation by any expert in the
similar field is much more profitable and effective. The agencies are being encouraged for the
core purpose of taking a strategic approach to subsequent procurements at the operational
level. Strategic procurement is a popular organization wide procedure and it needs inputs
from various functional areas and departments for a company (Bolandifar, Kouvelis and
Zhang 2016). The companies should set up a specific strategic procurement team. With the
help of strategic procurement, it becomes quite easier for the team to set the total direction for
procurement, after proper alignment with the business strategy.
Due to the higher involvement of cost, the organization is also able to include proper
outsourcing management on a constant basis and then also make sure compliance is
maintained in the service level agreements and contracts (Acimovic, Mijuskovic and Colic
2016). A major continuity of service is needed to be managed, for the core purpose that the
products continue to be delivered within time and hence higher significance is gained without
any type of issue. With the help of outsourcing process, the respective individual loses
control on their regular purchasing activities and hence a reliable organization is being
retained eventually.

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Outsourcing process could be done from different procedures, such as the customer
care support, payroll and inventory management and many more (White and James 2017). As
expenses of the business are reduced to a high level, several organizations have considered
this particular process in their regular activities and hence have been able to gain high success
easily and promptly. One of the most basic and significant advantages that the organization
gains from such outsourcing process include cost effectiveness. It enables the user to get their
work completed within a lower cost; however in the most effective method (Rosar 2017). It is
also responsible for saving on investments and as a result, the respective company does not
require to spend additional costs on the development of infrastructure.
When the work is outsourced, the partner, who takes over the outsourcing work,
would eventually require additional infrastructural alterations and would ensure high quality
and efficiency. As a result, the organization is also able to reduce the cost of their training
and recruitment of different employees as the outsourcing process does not need hiring of
skilled and highly efficient individuals (Dong, Tang and Zhou 2018). The respective work is
then handed over to different individuals, who are referred to as experts in the profession and
hence bringing out high quality and effectiveness in their work.
3. Conclusion
Therefore, a conclusion could be drawn that a proper process is needed to be executed
for completing strategic procurement. The first step is to conduct an internal needs analysis,
where proper analysis is required to be done. The other significant steps for this purpose
include conduction of an assessment of the suppliers’ market, collection of supplier
information, development of a sourcing and outsourcing strategy, implementation of the
sourcing strategy, negotiation with suppliers and then selection of the winning bid and finally
implementation of a transition plan or contractual supply chain improvement. The above

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provided report has properly described about a detailed analysis of cost being the only
consideration for the outsourcing process in strategic procurement.

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References
Acimovic, S., Mijuskovic, V.M. and Colic, L., 2016. Procurement Insourcing Vs.
Procurement Outsourcing: Evidence From Serbia. Eurasian Journal of Business and
Management, 4(4), pp.34-45.
Bolandifar, E., Kouvelis, P. and Zhang, F., 2016. Delegation vs. control in supply chain
procurement under competition. Production and Operations Management, 25(9), pp.1528-
1541.
Cantù, C., Corsaro, D., Tunisini, A. and Sebastiani, R., 2015. Innovative and networked
business functions: customer-driven procurement. Journal of Business & Industrial
Marketing.
Dong, B., Tang, W. and Zhou, C., 2018. Strategic procurement outsourcing with asymmetric
cost information under scale economies. Journal of the Operational Research
Society, 69(11), pp.1751-1772.
Holzhacker, M., Krishnan, R. and Mahlendorf, M.D., 2015. Unraveling the black box of cost
behavior: An empirical investigation of risk drivers, managerial resource procurement, and
cost elasticity. The Accounting Review, 90(6), pp.2305-2335.
Mburu, D.K., 2017. Effects of outsourcing strategy on procurement performance among
universities in Kenya.
Niu, B., Mu, Z., Chen, L. and Lee, C.K., 2019. Coordinate the economic and environmental
sustainability via procurement outsourcing in a co-opetitive supply chain. Resources,
Conservation and Recycling, 146, pp.17-27.

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Ramkumar, M., Schoenherr, T. and Jenamani, M., 2016. Risk assessment of outsourcing e-
procurement services: integrating SWOT analysis with a modified ANP-based fuzzy
inference system. Production Planning & Control, 27(14), pp.1171-1190.
Rosar, F., 2017. Strategic outsourcing and optimal procurement. International Journal of
Industrial Organization, 50, pp.91-130.
Vitasek, K., 2016. Strategic sourcing business models. Strategic Outsourcing: An
International Journal.
Wang, Y., Niu, B., Guo, P. and Song, J.S.J., 2017. Direct sourcing or agent sourcing?
contract negotiation in procurement outsourcing. Contract Negotiation in Procurement
Outsourcing (November 20, 2017).
White, R. and James, B., 2017. The outsourcing manual. Routledge.