Procurement as a Service Explained

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Procurement as a service is an emerging procurement strategy transforming how organizations of all sizes purchase goods and services. In 2022, the global procurement as a service market was valued at USD 6.15 billion, with an estimated growth of 11.1% from 2023 to 2030.

Similar to the SaaS model, the idea behind procurement as a service is simple: instead of relying on in-house teams or traditional procurement models, organizations can outsource some, if not all, of their procurement needs to a provider that uses technology, people, and expertise to do the work.

By streamlining the procurement function, this model gives organizations greater control over their spending and better visibility of the entire process.

In this guide, we’ll cover the basics of procurement as a service and how it works, its benefits, and what to look for when selecting a provider.

Procurement as a Service Definition

At its core, procurement as a service is a comprehensive cloud-based procurement model that involves outsourcing a portion or the entire process to a company that provides access to procurement services and software on demand.

Traditionally, procurement operations have been handled internally by a company’s employees or outsourced to a third-party provider (business process outsourcing). The former is often time-consuming and expensive, requiring a dedicated staff to source and manage vendors. 

On the other hand, procurement outsourcing can be beneficial but may not offer the same level of cost savings and control over procurement processes.

From sourcing and negotiating contracts to ensuring the timely delivery of goods and services, the procurement service provider typically ensures all your procurement needs are met without having to invest in your own IT infrastructure or staff.

Procurement service providers offer a more efficient, cost-effective solution for organizations by leveraging technology, automation, staff, and expertise. 

By taking care of all or part of the procurement process, businesses can pare down the time and resources needed to manage the day-to-day activities associated with procurement, allowing them to focus on more income-generating tasks.

What Are the Types of Procurement?

Procurement is an integral part of any organization’s operation. It involves the acquisition of goods and services from external sources, typically through a competitive bidding process. The four types of procurement are:

  • Direct procurement: Involves the purchase of goods and services that directly relate to the operations.
  • Indirect procurement: Focuses on non-core items, such as office supplies or janitorial services.
  • Material procurement: Tangible items purchased from a vendor, such as raw materials or software subscriptions.
  • Services procurement: People-based services required for the operations, such as consulting or IT services.

What Is the Difference between Procurement and Purchasing?

Procurement and purchasing are often used interchangeably but refer to two different processes. In a nutshell, procurement is the broader process of acquiring goods and services for an organization. It involves research, negotiation, and evaluation to ensure that the right products are purchased at the most cost-effective prices.

Some of the most common procurement activities are procurement data management, strategic sourcing, supplier relationship management, cost analysis, spend analytics, and risk mitigation.

In contrast, purchasing is just one element of the typical procurement process. It’s essentially ordering from a vendor or supplier after due diligence on pricing and quality. Other purchasing activities include supplier management, contract execution, and payment processing.

What Are the Benefits of Procurement as a Service?

Even though procurement as a service is still relatively new, most companies see the value and benefit of leveraging this model. With procurement services, they can streamline their operations and reduce costs without sacrificing quality.

As with any business process, procurement is time-consuming and complex. By outsourcing some or all of this process to a service provider, businesses can free up valuable resources for more important tasks.

Here are some of the key benefits of using the procurement as a service model:

1. Cost savings opportunities

Tapping into the economies of scale provided by a service provider can help organizations save money on procurement functions, particularly for high-volume purchases. They often get access to better deals and discounts that businesses wouldn’t have been able to negotiate on their own.

In addition, you can save significantly on labor costs and other overhead expenses since the provider will take care of some or all the necessary tasks involved in procuring goods and services.

2. Access to deep procurement expertise

Most procurement service providers have deep experience in the field, which allows them to leverage their expertise when selecting suppliers, negotiating contracts, and managing the overall process. They also provide valuable guidance on market trends and industry best practices, which helps businesses stay ahead of the competition.

This expertise is incredibly helpful for companies just starting their procurement strategy or wanting to optimize their existing processes.

3. Faster procurement process

With new technologies and automation, many of the manual and tedious tasks involved in procurement are eliminated or streamlined. As a result, the process can be completed in a fraction of the time it would take using traditional methods.

Necessary documents such as purchase orders, invoices, and contracts can be accurately generated in minutes, allowing organizations to reduce cycle times and make quick decisions to stay agile in a competitive market.

4. Better control and visibility

Since the provider is doing the bulk of the procurement work, organizations have more control over the procurement process and can keep better tabs on where their money is going.

With the help of technology, they can get real-time insights into their procurement activities, enabling them to make more informed decisions about what to purchase and when. They also get more visibility into their suppliers and vendors, allowing them to track performance metrics, such as on-time delivery or cost savings over time.

5. Improved compliance and value tracking

Rather than relying on manual processes and paper trails, procurement services use advanced automation tools to capture and track data, which ensures that everything is recorded accurately and compliant with internal policies and external regulations.

It makes it easier for organizations to track spending more closely, identify opportunities for savings, and demonstrate compliance with relevant regulations.

What to Look for When Selecting a Provider?

Getting started with procurement as a service is relatively simple, but selecting the right provider for your needs can be tricky.

When choosing a provider, organizations should look for one that offers flexibility and scalability in their offerings. It is also crucial to ensure that the provider can provide comprehensive support throughout the process, from category management to contract negotiation.

1. Identify your level of need

Start by auditing your current procurement processes to assess the strengths and weaknesses of your operations. This step will help identify areas that need improvement and the amount of support you would need from a provider.

If you’re just starting, basic procurement services may be enough. But if your organization is more complex and has multiple departments, you should consider a provider that can provide end-to-end support.

2. Determine your provider’s level of involvement

The level of involvement you require from your provider will depend on the complexity of your procurement needs.

For instance, an intermediary may be enough if you just need help with vendor selection and negotiation. If you’re looking for a hands-off approach, you should look for a provider that can handle the entire process from start to finish.

3. Consider offshore and onshore providers

Budget is often a major consideration when selecting a procurement service provider. Offshore providers may be more cost-effective but may not provide the same quality or guarantee results as onshore providers.

While onshore procurement can be more expensive, it offers greater control over the process. Onshore providers are also often better equipped to deal with specific local regulations and taxes.

4. Check the provider’s affiliations

Larger providers often have affiliations with professional organizations and industry-leading companies. These affiliations can give you an insight into their practices and provide additional assurance that the provider is reliable and trustworthy.

However, providers act as middlemen between sellers and buyers, so a little bias may be unavoidable, especially if they receive seller commissions.

Pick the Right Procurement Service Solution

Procurement as a service is quickly becoming the go-to solution for businesses looking to reduce costs and optimize efficiency in their supply chain operations. 

It eliminates the need for in-house staff, allowing organizations to access the expertise of experienced procurement professionals without investing in costly infrastructure, staff, or training.

With the right provider, organizations can benefit from cost savings, industry expertise, more efficient procurement processes, enhanced visibility, and improved compliance.

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