Procurement outsourcing is the practice of hiring an external organization to manage a company’s procurement function. It is a popular strategy for businesses looking to improve their procurement efficiency and reduce costs. However, before entering into a procurement outsourcing agreement, it is important to understand the types of contracts available. In this article, we will explore the different types of procurement outsourcing contracts.
1. Managed Services
Managed services refer to a type of procurement outsourcing contract in which the outsourcing provider takes complete responsibility for the procurement function of a company. This includes everything from sourcing suppliers to managing contracts. The provider assumes full responsibility for the procurement process and provides the company with a single point of contact for all procurement-related activities. Managed services contracts are typically long-term agreements, lasting anywhere from three to seven years.
2. Staff Augmentation
Staff augmentation is a type of procurement outsourcing contract in which the outsourcing provider supplies staff to work alongside the company’s existing procurement team. The provider is responsible for recruiting, training, and managing the staff. Staff augmentation contracts are typically short-term agreements, lasting from six months to two years.
3. Co-Sourcing
Co-sourcing is a hybrid procurement outsourcing model that combines the benefits of both managed services and staff augmentation. In a co-sourcing agreement, the outsourcing provider works with the company’s procurement team to identify areas for improvement and provide expertise in those areas. The provider is responsible for implementing new processes and systems and for training the company’s procurement team. Co-sourcing contracts are typically short to medium-term agreements, lasting from one to three years.
4. Project-Based
Project-based procurement outsourcing contracts are temporary agreements in which the outsourcing provider is hired to manage a specific procurement project. This could include anything from sourcing a new supplier to negotiating a contract. Project-based contracts are typically short-term agreements, lasting from one to six months.
5. Bundled Services
Bundled services procurement outsourcing contracts are a type of managed services agreement in which the outsourcing provider takes responsibility for multiple procurement functions, such as sourcing, supplier management, and contract negotiation. This type of contract is ideal for companies that want to outsource multiple procurement functions to a single provider. Bundled services contracts are typically long-term agreements, lasting from three to seven years.
In conclusion, procurement outsourcing is an effective strategy for reducing costs and improving efficiency in the procurement function. However, it is important to understand the different types of procurement outsourcing contracts available and choose the one that best fits your organization’s needs. Whether it is a managed services, staff augmentation, co-sourcing, project-based, or bundled services contract, outsourcing your procurement function can help your company achieve its procurement goals and improve overall performance.