The factors impacting on the success of outsourced purchasing.
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Date
2003
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Abstract
For an organisation that outsources its purchasing function to a specialist purchasing organisation the benefits are mostly relate to the peace of mind the organisation has in knowing that there is sufficient focus and attention being given to the purchasing function along with the relevant procedures and controls to ensure that the purchasing function is being done to ensure maximum benefit for the organisation. The result of the additional attention along with the other advantages such as the buying power of the OPSP is that there are significant savings to be achieved through outsourced purchasing. There are also issues of concern that need to be taken into consideration when outsourcing the purchasing function. These include issues such as organisational inertia, co-ordination difficulties and lack of plant specific knowledge within the specialist purchasing organisation. The impact of these can however be overcome through co-operation and the commitment of both parties to the long term success of the relationship. The results achieved by organisations outsourcing their purchasing have been varied, and it is the factors that have an impact on the success of the venture that are of interest. The most significant of these factors were found to be the availability of information from the organisation, the expertise and buying power of the outsourced purchasing service provider (OPSP) and the flexibility and support from the end-users and management of the organisation. In order to maximise the benefits that can be achieved through outsourcing, the organisation needs to ensure that the information required by the OPSP in order to effectively purchase for the organisation is available. This includes information such as complete and correct specifications on all commodities, annual usages and price histories. The organisation must also ensure that the OPSP it selects has the buying power and purchasing expertise required to ensure maximum benefit. Additionally the organisation must ensure that all staff involved and effected by the purchasing function are made aware of the potential problems and more importantly the benefits for the organisation so that the staff support the process. Should these steps be taken the organisation would stand to reap more benefits out of outsourced purchasing. The percentage saving on the cost of stock commodities over the first 3 months that purchasing was outsourced was taken as an indication of the success of outsourced purchasing and was measured for 3 organisations, PG Bison, Dunlop Industrial Products and Assmang. PG Bison achieved the highest percentage saving (10.7%), followed by Dunlop Industrial Products (7.4%) and Assmang (3.7%). All 3 of the above organisations were analysed to determine the presence of the factors influencing the success of outsourced purchasing and it was found that PG Bison had the most in its favour and it would therefore be expected to get the most benefits out of outsourcing its purchasing, which in reality it appeared to have done. Based on the results of the analysis Assmang would have been expected to achieve better results than Dunlop, which in practice was not the case. The percentage saving achieved by Dunlop was well above that of Assmang. The rating scale developed therefore failed to accurately predict the extent to which each client would benefit from outsourced purchasing. There could be a number of reasons for this. The use of the percentage savings on stock commodities as a measure of the success of outsourced purchasing can be debated, but it is the only factor which can be accurately measured and it is a direct result of a number of the advantages of outsourcing identified. It is most probable that the discrepancy in the analysis arises in the process used to calculate the outsourcing rating for each of the organisations. The process used to determine the impact that each of the factors identified has on the savings could be further refined in a number of ways. The distribution of the questionnaire could be increased to include more staff from the organisations concerned. The analysis could be expanded to include other organisations and the results analysed to identify common factors and varying factors in an attempt to identify how variations in factors impact on the savings achieved.
Description
Thesis (MBA)-University of Natal, 2003.
Keywords
Contracting out., Theses--Business administration.