Procurement And Outsourcing

When you purchase any good or services considering three prime factors - quantity, quality and time at the best cost for owning the product, you have procured the good and the whole process is defined as Procurement. Depending on the goods that you wish to purchase for your business, the same order can be repeated multiple times or new products could be purchased every time. This indicates that Procurement has a close relationship with the demand-supply trends of the local market and the cost of the product in the global market, which makes Procurement and Outsourcing go hand in hand.

A good procurement strategy will allow a company to procure goods for its business in a cost-effective manner. With quality and timeliness of delivery not compromised, there are many factors which make Procurement and Outsourcing a very effective tool for a company to get the required goods cheaply and qualitatively.

  • Demand and Supply for Product - The company that requires to procure goods must estimate the demand for the good available in the market with the help of a lot of estimating tools. This demand would give the company the number of units for the good to be purchased. A company which wishes to slash costs on procurement will look for suppliers worldwide. If the supplier is located overseas and the supplier offers the best quality product at a very affordable price, the company outsources its procurement needs to the vendor.

  • Quality Management - After the overseas supplier commences production on the order for the goods, it is important that the client company monitors the production to check on the quality of the goods. The inspections can be scheduled on pre-agreed intervals between the vendor and the client company(buyer).

  • Logistics and Delivery - After production is completed, the goods would need to be shipped to the buyer's address. The shipment medium can either be by road, air or water.

Procurement and Outsourcing together form a very complex supply chain with close coordination required between all participants. A lot of companies like Walmart, the retail giant in the USA have formed a successful Supply Chain Management system that allows them to procure goods from overseas and yet not impacting the quality of the goods. Many companies who are sensitive to logistics and delivery bit of the whole process may decide to in-source the production of the goods to a company in the USA. Each strategy has its own advantages and disadvantages.

My opinion to the whole argument is simple : If one can get the Supply chain Management System right and do a quality management of the production of goods, Production and Outsourcing can be combined to provide the buyer an excellent opportunity to cut down on product-procuring costs.