Procurement is a critical function for businesses of any size or in any industry.
It directly impacts your bottom line, as your ability to purchase quality goods and services at a low price determines how profitable your business will be.
However, traditional procurement practices can be extremely resource-intensive and inefficient if you lack the proper tools and expertise.
To streamline the process, many businesses are considering the emerging procurement as a service model, transferring these tasks to an external provider with specialized expertise and dedicated technology.
What is procurement as a service?
Procurement as a service allows businesses to outsource any or all of their purchasing tasks to a third-party provider who leverages the best of technology, automation, and people power to offer an expert and efficient sourcing strategy.
This model provides companies access to subject matter expertise in various purchasing categories and advanced procurement software, enabling them to be more strategic and buy higher-quality products at a lower cost.
Depending on the provider, companies may offer services throughout the entire procurement process, including strategy, contract negotiation, purchasing, and managing vendor relationships.
Procurement as a service vs. traditional procurement
Under the traditional model of procurement, the in-house purchasing department is responsible for sourcing and acquiring goods or services for the business.
Part of their role is to find quality products and negotiate favorable contract terms with vendors and suppliers, helping to support the organization’s overall financial goals.
Small, scaling companies may not have the resources for a dedicated purchasing department internally. Procurement tasks might fall to other departments, which may lack the capacity and expertise to get the company quality goods at the right price.
Fortunately, the service procurement model helps companies of any size get the equivalent of a dedicated, strategic shopper to handle purchasing matters on their behalf.
It’s a more modern take on the traditional purchasing department, supporting lean and efficient internal operations, while still allowing companies to benefit from the expertise of dedicated procurement specialists.
So, rather than expanding internal headcount to staff a procurement department or investing in robust purchasing systems, companies can outsource these processes to a technology-driven provider for better efficiency.
Exploring the procurement as a service process
Procurement as a service is becoming a popular purchasing model for modern businesses, with some estimates expecting the global service procurement market to expand at a growth rate of 11.1% from 2023 to 2030.
While the specifics of the service procurement process can vary by provider, here is an overview of what this model looks like in practice.
Initial consultation
If you’re considering the service procurement model, the first step will be to meet with the provider to set expectations and provide them with the necessary information to create an effective strategy.
You’ll go over your current procurement practices and challenges, and discuss why you’re looking to outsource the process.
During this stage, you can determine the scope of engagement you need, whether that’s end-to-end procurement support or a more tailored solution for a specific purchasing category.
Based on this information, the service procurement provider will dive into the planning stage, creating a custom strategy and procurement policies that are built to your specific needs and requirements–including timelines, budgetary constraints, and target performance metrics.
Implementation
Next, the provider will put the strategic procurement plan into action.
Depending on the complexity of your current procurement practices and how many vendors you work with, this can be a lengthy step as they ensure all systems and processes successfully transition into their control.
They will migrate data from any procurement systems you currently use into their tools and software.
With this technology, they can automate certain tasks, efficiently monitor your spending, track payments, and use advanced analytics and algorithms to uncover cost-saving opportunities.
Sourcing and purchasing management
After the initial implementation, the provider can begin to assess your current sourcing methods, evaluate your existing suppliers and vendors, and make sourcing recommendations that would be more cost-efficient, where applicable.
The service procurement provider can delegate procurement to category experts within their organization who will handle all vendor selection tasks like reviewing bids and proposals and negotiating contracts.
Then, their team will process orders and manage transactions, verifying vendor invoices for accuracy with two-way or three-way matching and scheduling accurate and on-time payments to avoid late fees or penalties.
Ongoing management
Service procurement providers typically offer additional services beyond handling day-to-day procurement tasks, helping you make strategic improvements and tap into additional cost savings without compromising on the quality of products and materials you buy.
This might include risk management, compliance support, and performance metric monitoring to get a high-level view of your procurement processes and ensure your practices support your overall business objectives.
Providers will monitor the changing business landscape and emerging trends in the market to adapt your procurement policies as needed to stay competitive and agile.
Benefits of procurement as a service
The procurement as a service model is still in its early stage of development.
But, businesses are becoming increasingly drawn to the advantages of service procurement providers can offer against the traditional procurement model, such as:
Cost savings
Possibly the largest benefit that you can find with service procurement is that it is often much cheaper than staffing and managing a dedicated procurement team in-house.
By outsourcing procurement to an expert provider, you can save on direct labor costs, overhead, and technology infrastructure needed to support this department.
Of course, you will pay a fee to the provider for their services. But, because they serve multiple customers, you can enjoy economies of scale while still accessing top of the line procurement tools and systems.
Access to expertise
Another significant advantage of the PaaS model is that it ensure your procurement tasks are handled by experts and specialists.
These providers only specialize in procurement, meaning they have deep expertise in the process and can help you achieve more lucrative supplier relationships for better cost efficiency and product quality.
This can be particularly beneficial for small or medium-sized businesses whose teams are not familiar with critical procurement tasks like contract negotiations, which may provide further cost savings through more favorable pricing and payment terms.
Enhanced scalability
Using a service procurement model can also provide your business with better agility and scalability, characteristics that can help you be more competitive in the modern marketplace.
Many service procurement providers have a flexible, on-demand model, meaning they can quickly scale their services up or down as needed to take help you take advantage of fluctuating demand.
If you’re handling procurement internally, you’d need to hire and train additional staff to handle the surge in demand, which can put a damper on growth.
Improved efficiency
As you grow your business and begin to work with more vendors and suppliers, it can be more difficult to maintain relationships with them, stay on top of payments, and monitor the market for better opportunities.
But, outsourcing procurement to a PaaS provider is a win-win for better efficiency.
It allows you to free up your internal resources for more strategic, revenue-driving tasks while they handle procurement matters with precision and efficiency.
Common challenges in adopting service procurement
Even though procurement as a service can be a great alternative to in-house procurement, there are some potential roadblocks that can come with implementing this model, including:
Integration with existing systems
Every business has some sort of procurement system, whether it’s highly sophisticated software or a basic spreadsheet.
Either way, you need to ensure that the PaaS system you implement will integrate with your existing tools and platform.
A seamless integration between your systems will help you avoid costly business disruptions and miscommunications with your vendors, which can have serious consequences to your operations.
Security concerns
When you adopt any new digital platform or technology, there is always a concern around data security and privacy–and service procurement is no different.
Procurement providers will have access to sensitive payment information and vendor data by the nature of their service, so you’ll need to inquire about the security framework they’ve implemented to safeguard your and vendors’ data.
Finding the right partner
A growing number of providers are offering service procurement, but they don’t all offer the same level of service and expertise.
You need to do the proper due diligence to find the right PaaS partner for your organization’s needs.
This means evaluating their reputation in the market, their experience with the sourcing categories your business handles, and the cost-effectiveness of their pricing structure, among other considerations.
A viable procurement as a service alternative: all-in-one expense management software
Procurement as a service is a viable option for small and medium-sized businesses that don’t have the resources for a dedicated procurement department within their organization.
But, it’s not the only resource available to the companies looking for a better way to manage their spending.
With BILL Spend & Expense, you don’t have to outsource your procurement tasks and can maintain full control of all spending in-house.
Our platform makes it easy to manage the payment side of procurement, providing you with real-time visibility over your business’s finances and free budget management tools to keep purchasing on track with your goals.
Plus, our automated AP system helps you manage vendors and schedule on-time payments–critical aspects of the procurement process.
Try BILL for free today to see how it can be a valuable resource for your procurement workflows.
