The increasing complexity of the business environment and the internationalization of business activities in the past decades have led to an increase of market dynamics. For companies, it is therefore increasingly important to be flexible from the tactical and strategical point of view, to keep costs under control and to maintain or even increase their level of performance with regard to worldwide competition.
Companies have to adjust their internal organizational structure concerning cost –and efficiency aspects, also with regard to the core competences each company specializes in. The outsourcing of competences to certain suppliers and service providers is regarded as a main strategy to secure competitiveness.
Therefore, the usage of new communication -and IT-tools is getting more and more important.
This paper shows the potential and limits of outsourcing the Procurement when companies try to restructure their organization. Beside conventional possibilities of outsourcing, new electronic procurement-solutions have become more popular during the last decades. The focus of this paper lies on such new electronic procurement-solutions. Chapter 2 describes the basics of Procurement and Outsourcing. Based on this, chapter 3 shows potential and limits of both, conventional solutions of outsourcing and also new modern solutions. To get a more practical view, the paper describes the topic by means of two examples from the automobile industry by BMW Group and the DaimlerChrysler AG. Finally, the paper gives a summary and a preview regarding upcoming business challenges of outsourcing procurement.
Table of Contents
1. Introduction
2. Basics
2.1 Basics of Procurement
2.1.1 Definitions and explanations of terms
2.1.2 Functions and Responsibilities
2.1.3 Objectives
2.2 Basics of Outsourcing
2.2.1 Definitions and explanations of terms
2.2.2 Fields of Outsourcing
2.2.3 Objectives
3. Potential and limits of Outsourcing Procurement
3.1 Potential of Outsourcing Procurement
3.1.1 Conventional Possibilities
3.1.2 E-Procurement and E-Procurement Service Provider
3.1.3 Outsourcing with E-Procurement using the example of BMW Group
3.2 Limits of Outsourcing Procurement
3.2.1 The problem of Know-How-loss
3.2.2 Loss of Control
3.2.3 Reduction of Synergy
3.2.4 Limits of Outsourcing Procurement with E-Procurement using the example of DaimlerChrysler AG
4. Summary and Future Prospects
5. Appendix
Objectives & Core Topics
This paper examines the potential and limitations of outsourcing procurement processes, specifically focusing on how modern electronic procurement solutions serve as a strategy for companies to restructure and maintain competitiveness in dynamic global markets.
- Theoretical foundations of procurement and outsourcing.
- Benefits of e-procurement and electronic service providers.
- Risks associated with outsourcing, such as loss of know-how and control.
- Practical automotive industry case studies (BMW Group and DaimlerChrysler AG).
- Strategic management of outsourcing for long-term organizational success.
Excerpt from the Book
3.1.2 E-Procurement and E-Procurement Service Provider
E-Procurement is the electronic realization of procurement processes, covering internal –and/ or external market related activities, which are mainly based on Information and Communication Technology (ICT) and are focussed on providing the products a company cannot produce itself. This can be internal approval processes preceding the actual placing of a procurement order. In case of market related activities the company will contactexternal partners like suppliers. E-Procurement can be used in the operative and in the strategical procurement. The goal is to reduce process costs and product prices by accelerating procurement processes.
Process costs, especially labour costs as the biggest cost factor, can be reduced by automatic handling. According to a survey, the reduction of process costs by means of E-Procurement is regarded as a crucial strategical objective by 85% of the polled companies. Thus, error frequency and related costs for correction of the entire procurement process can be reduced.
Service companies, offering electronic procurement solutions are called System providers. They offer procurement process solutions for customers, who would have to use expensive standard software packages for their small procurement demands. System providers have the task to develop standard interfaces, replacing the manual input of procurement processes into the customers cost accounting modules; thus, helping to reduce labour costs.
The goal is to shorten and to accelerate processes. Full-Service-Providers pursue the same goal. Full-Service-Providers additionally offer Procurement-Marketing Systems and Management-Information Systems, whereas they invest into high-capacity IT-systems, into the development of business relationships and into powerful databases.
Summary of Chapters
1. Introduction: Outlines the increasing complexity of the global business environment and the necessity for companies to restructure their procurement processes to maintain competitiveness.
2. Basics: Defines the fundamental concepts of procurement and outsourcing, providing the theoretical background necessary for understanding subsequent strategies.
3. Potential and limits of Outsourcing Procurement: Analyzes the conventional and modern electronic methods of procurement outsourcing, illustrating both the significant potential for efficiency and the inherent risks using automotive industry examples.
4. Summary and Future Prospects: Concludes the findings by emphasizing the strategic importance of planning and monitoring when choosing to outsource procurement functions.
5. Appendix: Provides supplementary data, including ABC-Analysis charts and definitions for calculating vertical integration and added value.
Keywords
Outsourcing, Procurement, E-Procurement, Supply Chain, Automotive Industry, Business Process Outsourcing, BPO, Cost Reduction, Flexibility, Core Competences, Make-or-Buy, Single Sourcing, System Providers, Maverick Buying, Vertical Integration.
Frequently Asked Questions
What is the core subject of this paper?
The paper explores the strategic use of outsourcing within procurement, analyzing both conventional methods and modern e-procurement solutions.
What are the primary thematic areas?
The research covers procurement basics, the shift toward electronic service providers, the risks of outsourcing, and practical applications in the automotive sector.
What is the main research goal?
The objective is to identify how outsourcing can improve organizational efficiency while managing the risks of lost know-how and reduced control.
Which methodology is applied?
The author uses a combination of theoretical analysis of procurement concepts and qualitative case study evidence from major automotive corporations.
What topics are discussed in the main section?
The main section details the shift from manual to digital procurement, evaluates different service provider models, and discusses the challenges of outsourcing core functions.
Which keywords best characterize this work?
Key terms include Procurement, E-Procurement, Outsourcing, BPO, Vertical Integration, and Core Competences.
How did the BMW Group successfully implement e-procurement?
BMW utilized an e-procurement solution from ARIBA to manage MRO products, which improved process efficiency and shortened the return on investment period.
Why did the DaimlerChrysler "PC Global" project struggle?
The project faced difficulties because the outsourcing scope was too vast for a single service provider, leading to issues with high-quality service consistency and organizational complexity.
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- Martin Ruppe (Autor:in), 2014, Potential and Limits of Outsourcing Procurement, München, GRIN Verlag, https://www.grin.com/document/275426
